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The market frenzy surrounding video and electronics retailer GameStop is evidence of how social media-fuelled populism can affect markets and confuse clients, the president of a Toronto-based advisory firm says.

“The GameStop craze is just another example of the power of how populism can be amplified through social media,” said John Webster, president of Queensbury Securities. “Stock markets democratize the prices of companies, and stock prices are a reflection of investors’ beliefs of a company’s value.”

Webster said when “populist views” take hold and become contrary to the views of experts, the results can appear irrational — and can be financially damaging to many investors.

“I had one client inquire about buying this stock,” said Webster. “I told them there is no investment thesis that would support this purchase other than hoping that continued volatility presents an exit opportunity. Speculative purchases such as this rely solely on the ‘greater fool theory.’”

GameStop’s stock shot up more than 70% in early afternoon trading Friday, clawing back most of its steep loss from the day before, after Robinhood said it will allow customers to start buying some of the stock again. GameStop has been on a stupefying 1,900% run over the last three weeks and has become the battleground where swarms of smaller investors see themselves making an epic stand against the 1%.

The moves are reverberating across Wall Street as concerns rise about how much damage the frenzy could do as its effects spill out into the broader market. The big professional investors who had been banking on a drop for GameStop’s stock are taking sharp losses. Investors say that’s pushing them to sell other stocks they own to raise cash, and that is helping to pull down parts of the market completely unrelated to the revolt by Main Street investors.

The assault is directed squarely at hedge funds and other Wall Street titans that had bet the struggling video game retailer’s stock would fall. A couple have already essentially admitted defeat, with one saying Friday it would stop publishing reports on stocks it expects to fall. The army of smaller and novice investors, meanwhile, is pledging to keep up the momentum for GameStop’s stock in hopes of inflicting more pain on the financial elite.

The volatility around GameStop and a few other stocks has drowned out many of the other issues weighing on markets, including the virus, vaccine rollouts and potential aid for the economy.

“Our consideration is whether this is something that is a long-term influence or contained within a handful of companies,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.

Webster said he’s a believer in fundamental analysis and an efficient market in the long run.

“We want to buy $1 for less than $1 — not $100, hoping that someone is willing to pay more in the future,” Webster explained. “There are plenty of opportunities out there which are less speculative. We invest; we don’t gamble.”

Webster said any purchase, speculative or otherwise, must be in line with a client’s goals, objectives and risk tolerance. And, as an advisor, he would not accept any request if he did not believe it was in his client’s best interests.

“If they really want to purchase a stock against my advice, they can open an online account elsewhere,” said Webster. “We are not obligated to follow a client’s instructions any more than a physician is obligated to write a prescription demanded by a patient. I have lost clients because of this approach but, as registered advisors, I believe we have a responsibility to always act in what we believe to be the clients’ best interest.”

Market watchers say they expect the smaller-pocketed investors who are pushing up GameStop to eventually get burned. The struggling retailer is expected to still lose money in its next fiscal year, and many analysts say its stock should be closer to $15 than $330.

In response, many users on Reddit have said they can keep up the pressure longer than hedge funds can stay solvent (although they often use more colourful language).

The SEC said Friday that it is evaluating “the extreme price volatility of certain stocks’ trading prices,” warning that such volatility can expose investors to “rapid and severe losses and undermine market confidence.”