GameStop’s lower than anticipated sales and profit figures have cemented the dangers of social media-led stock frenzies, with an expert warning that activist investors could be playing a potentially costly game.

The warning from Nigel Green, the chief executive and founder of deVere Group, follows the retailer’s worst market day in seven weeks off the back of its fairly disappointing results.  

In fact, GameStop lost 33 per cent over the last 24 hours, the biggest one-day sell-off since it plummeted 42.1 per cent on 4 February.

As such, Mr Green believes GameStop’s current predicament has exemplified the dangers of chasing market fads. 

“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,” said Mr Green.

“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,” Mr Green noted.

He warned that 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.

“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,” Mr Green advised.

At the height of the GameStop frenzy, Mr Green tipped that instead of market frenzies, micro-bubble spotting and diversification across asset class, sector, region and even currency should become a priority for investors in the current climate.

Warning that there is a “big difference between investing and gambling”, Mr Green’s last piece of advice for those still caught up on GameStop is: “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.”