Many vigilante investors who are being pulled into the social media frenzy to buy stocks could end up “financially burned”.
The warning comes after shares of AMC jumped almost 40% last week as investors on the popular Reddit WallStreetBets board were once again pushing the stock in a bid to hurt short-sellers who have bet against the theater operator.
It follows similar moves that started in January when activist investors on Reddit pumped other out-of-favor firms including GameStop and BlackBerry.
There’s a certain vigilante mindset amongst those traders being drawn into this social-media frenzy to pump certain stocks.
They seem to believe they’re in a David and Goliath-style battle against Wall Street and, judging by some of the comments on the forum, it appears kind of personal.
They’re behaving like activists, not investors. Frankly, those pushing these stocks don’t seem to care about it going up – instead they’re out to destroy the sellers.
Heightened emotions, hype and hysteria and investing are rarely good bedfellows. I can’t help but think this is likely to end in tears for many activist traders.
These forums have tapped typically inexperienced, younger people who might not necessarily have “the financial resources to be resilient against usually highly speculative and volatile investments.
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 face a financial hit.
I would avoid piling into stocks pumped by social media influencers.
If you do want the thrill or novelty of chasing big gains, you really should ensure that you have a sound, diversified, long-term plan beforehand.
There’s a major difference between investing and gambling.
This kind of speculative day trading is becoming a global phenomenon. I don’t think this is a fad.
However, in order 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.
Balanced advice should be at the heart of the decision-making process – and then proceed as you wish.
Nigel Green is the chief executive and founder of deVere Group
PERSONAL FINANCE