Social media-led activist investors are, I believe, playing a potentially costly game.
My warning comes as GameStop, the video games retailer publishes, its first earnings report since it grabbed international attention during a Reddit-fuelled buying frenzy in January.
Both the firm’s sales and profit figures were lower than many analysts had anticipated and its shares, which had dropped 6.5% during the day, briefly climbed 8% in after-hours trading before falling more than 15%.
This year has seen a surge in day-trading frenzies, triggered by so-called "activist investors" on social media platforms and online forums urging others to invest their cash into populist bandwagons.
They have tapped typically inexperienced, younger people who might not necessarily have the financial resources to be resilient against usually highly speculative and volatile investments.
Maybe unaware of the high level of risk involved of these social media-led activist investment campaigns, people are playing a potentially very costly game.
Extreme caution should be exercised before joining stock frenzies of this nature. The valuations can be expected to be wild – in both directions – and there’s a legitimate risk that novice investors could get face a financial hit.
To create, grow and safeguard wealth consistently to reach your long-term goals – which for most people is financial security and freedom – there’s no substitute for independent, professional, personal advice.
At the height of the GameStop frenzy, I said: “Micro-bubble spotting, and diversification across asset class, sector, region and even currency, should become a priority for investors right now.
“As ever, investors should work alongside a good fund manager to seek out those stocks most likely to generate and top-up their wealth over the long-term.”
This still stands.
The message is clear: Avoid piling into stocks pumped by social media influencers.
If you do want the thrill or novelty or chasing big gains, you really should ensure that you have a sound, diversified, long-term plan beforehand.
And remember: there’s a major difference between investing and gambling.
Nigel Green is founder and CEO of deVere Group. One of the world's largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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