Dumb Money: ASIC's warning to movie fans (and ASX investors)

Check out the cinema ad that will run at screenings of the new Hollywood blockbuster about the GameStop short squeeze.

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The corporate regulator will be warning ASX investors about the dangers of investment hype in cinema advertisements at screenings of a Hollywood blockbuster about meme stocks.

Dumb Money, which opened Thursday, is a biographical film about Keith Gill, the man who started a frenzy for shares in GameStop Corp (NYSE: GME) in late 2019 via posts on Reddit and YouTube.

The hype eventually led to a famous short squeeze on the struggling video game retailer's stocks in January 2021.

The incident led to mass losses for both institutional investors and retail shareholders.

The term "meme stock" came from the GameStop short squeeze to permanently enter the mainstream financial lexicon.

Here is ASIC's ad to run before Dumb Money 

The Australian Securities and Investments Commission is hoping that its ad before Dumb Money will raise awareness of the risks in riding ASX shares purely out of hype.

"They shouldn't believe the hype – if an investment sounds too good to be true, it probably is," said ASIC chief executive Warren Day.

"First-time investors should be particularly cautious and aware of the inherent volatility and complexities of market trading."

Pump-and-dump, gamified apps also under scrutiny

Those who do the hyping in order to sell their stocks at an inflated price are also reminded that such a "pump and dump" manoeuvre could be illegal.

Apps that try to "gamify" stock trading are also in the firing line of ASIC, as they can be psychologically addictive.

But ultimately, individual investors need to take responsibility for avoiding ill-considered purchases.

"Speculative stocks, by nature, are high risk, high reward, with uncertain prospects," said Day.

"With high-risk investments, you should be prepared to lose all of your money."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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