Investors need to exercise the utmost caution before joining social media-led stock frenzies, warned the CEO of one of the world’s largest independent financial advisory and fintech organisations.
The warning from Nigel Green, chief executive and founder of deVere Group, comes as a group of at-home retail investors on Reddit have been promoting a number of stocks, with the aim of squeezing short sellers that have been betting against them.
GameStop, AMC, Pearson, Blackberry, Nokia and Cineworld are amongst the targets.
GameStop’s stock has surged nearly 700% in the past two weeks, while Blackberry is up 185% and on track for its best month ever.
The Reddit community r/wallstreetbees, which has 2.8 million members, is full of users urging each other to keep pushing the stocks higher.
“Investors should exercise the utmost caution before joining social media-led stock frenzies of this nature. The valuations can be expected to be extremely wild – in both directions – and there’s a legitimate risk that investors could get burned,” said Green.
“This is being pitched as a battle-play of Wall Street or The Square Mile versus The Little Guy. However, this is not typically the way reasoned, savvy investors should strategise to create and build their portfolios in order to reach their financial goals,” he added.
“This is a dangerous game to play for retail investors.”
Bursting of bubbles
Earlier this week, the deVere CEO noted that in today’s landscape, it is not the macro-bubble of which investors should be wary.
“Any potential bursting of bubbles is likely to be within specific stocks, so unlikely to rock the global financial markets as has happened previously – but individual investors could still be caught off-guard.
“Micro-bubble spotting, and diversification across asset class, sector, region and even currency, should become a priority for investors right now.”
Nigel Green concluded that 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.
“I would avoid being drawn into the hysteria driven by social media.”