Vigilante investors could wind up ‘financially burned’

A number of vigilante investors who are being driven into the social media frenzy to buy stocks of companies like AMC could find themselves financially burned.

Last Thursday, AMC shares rose almost 40% as investors on the Reddit WallStreetBets board once again pushed the stock in an attempt to hit short sellers who bet against the theatre operator.

This follows on from similar action that kicked off in January when activist investors on Reddit pumped other out-of-favour companies such as GameStop and BlackBerry.

As I was quoted byThe Guardian and amongst other media, it seems there’s a certain vigilante mindset among traders being pulled into this social-media frenzy to pump certain stocks. 

They appear to think they’re embroiled in a David and Goliath-style battle against Wall Street, behaving like activists, not investors. 

Indeed, those driving these stocks don’t seem to care about it going up, they’re just out to harm the sellers.

Indeed, heightened emotions and a lot of hype and hysteria rarely go well together.

As such, I think this will likely end badly for many activist traders.

These forums have appealed to typically inexperienced younger traders who may not have the necessary financial resources to be resilient against usually highly speculative and volatile investments.

Therefore, these investors need to be especially cautious before getting involved in stock frenzies like this. The valuations will likely be wild in both directions, and novice investors could face a costly financial hit.

I would avoid piling into stocks pumped by social media influencers, and for those investors who are seeking the thrill of chasing big gains, having a sound, diversified, long-term plan beforehand is crucial.

Of course, there’s a major difference between investing and gambling.

This type of speculative day trading is fast becoming a global phenomenon. This isn’t a passing whim.

Yet in order to create, amass and protect wealth consistently to reach your long-term objectives, there is absolutely no substitute for independent, professional, personal advice.

Balanced advice should be at the core of the decision-making process.

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