The field of investment allures everyone. Not just stockbrokers and everyday people, even celebrities can’t stay away from it for too long. And the sharp incline in celeb investors over the past few years has proved this.
Talking about celeb investors, in 2010, CEO of Berkshire Hathaway and billionaire investor, Warren Buffett, was quoted as saying that people should learn to invest from sports stars and celebrities like Jay-Z. Now while some may think it was a sarcastic comment, Buffet was actually pretty serious about it, and there’s good reason why he said so.
How celebrity involvement spikes asset prices
In 2021, Jay-Z sold a majority stake of Tidal (his music-streaming business) to Jack Dorsey’s Square, and 50% of Armand de Brignac (his champagne company) to LVMH. Several other celebs from the movie and sports world too made impressive deals that highlighted that they were quite wise when it came to money matters.
What’s worthwhile to note is, that when celebs show interest in a particular asset class, its demand automatically increases. Consequently, the increased demand lures the followers of such celebs into investing in the same assets, and more often than not, they end up making good money from such investments.
Keeping a close eye on such trends, several investors have turned to celebs for money advice, and according to Buffet, they’re right in doing so.
The U.S. SEC has a different opinion though
When sports personalities like Shaquille O’Neal and Colin Kaepernick launched their Special Purpose Acquisition Companies (SPACs), within months they became hot topics for discussion. Jay-Z also became the CVO of TPCO and promised to raise $10 million to invest in Black-owned cannabis businesses. After observing their idols earning a hefty sum of money, even fans got inspired to invest in SPACs.
However, the U.S. Securities Exchange Commission (SEC) suggests that investing in celeb-backed SPACs isn’t a good idea. On March 10, 2021, the SEC released a statement warning investors to not fund SPACs just for the sake of celebrity engagement.
It informed the citizens that usually, celebs acquire stakes in companies on different terms, and they may not be favorable to the shareholders. The financial regulator revealed that last year many SPACs traded below $10 per share (which was the standard price of selling shares to the public).
What do experts say?
Dr. C Keith Harrison, University of Central Florida’s Professor, says that there’s nothing wrong with following the hip-hop moguls as they know what the future holds. When you can see a company starting with two turntables becoming a billion-dollar company, it’s obvious to invest in it, right?
While giving an example of hip hop stars backed companies, he named Uber and Dropbox. Uber received an investment from Jay-Z while Dropbox received an investment from rapper Nas.
The bottom line
At the end of the day, it’s your personal choice whether you want to fund a company linked with celebs or not. But before pumping money into it, what matters is that you take a thorough look at the company’s past performance and growth possibilities to determine its value in the future.