The British Columbia Securities Commission is warning people not to invest in stocks based on emotions and what they’ve read on social media, particularly when it comes to shares experiencing extreme price volatility.
“If you’re feeling pressured to invest based on news stories or sudden market shifts, it may result in you buying high and selling low,” Pamela McDonald, the BCSC’s director of communications and education. “It’s easy to get caught up in the hype, but the best thing to do is to leave your emotions behind and get educated.”
It comes after shares in retailer GameStop soared from about $20 apiece in mid-January to more than $400 by Jan. 28, largely fueled by discussion on Reddit’s WallStreetBets forum. Other companies, such as AMC Entertainment and BlackBerry, also saw share prices rise dramatically last month, but not nearly as much as GameStop. Share prices in all three companies have since dropped dramatically.
As a result, the BCSC recommends investors understand their risk tolerance and do research or use a registered financial advisor before making investment decisions. They also strongly recommend people avoid taking advice from users on online forums or social media.
“Online forums, social media sites, and chat rooms can contain inaccurate information about companies, illegal promotional content, or advice that is inappropriate for certain investors,” BCSC said in a statement.
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) announced earlier this week that they are closely monitoring how “extreme price movement of certain stocks may be contributing to volatility in Canada’s capital markets.”