Are activist investors piling into social media frenzies playing with fire?

March 24, 2021

By George Prior

– Social media-led activist investors are playing a potentially costly game, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, the chief executive and founder of deVere Group, comes as the video games retailer published its first earnings report since it grabbed international attention during a Reddit-fuelled buying frenzy in January.

Both the gaming 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%.

Mr Green says: “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.

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“By being unaware of the high level of risk involved in these social media-led activist investment campaigns, people are playing a potentially very costly game.”

He continues: “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.

“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, Mr Green 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.”

The deVere CEO concludes: “I would 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.

“There’s a major difference between investing and gambling.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

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Are activist investors piling into social media frenzies playing with fire?