First off, lets address the craze that has created all of the buzz these last two weeks… the speculative frenzy of investing in floundering stocks like GameStop, AMC Entertainment, BlackBerry and more by Reddit investors (in a forum called WallStreetBets). This wasn’t something orchestrated last week, it had been in motion for over a year and executed brilliantly by those who owned GameStop shares many months ago. Their actions saw GameStop’s share price rise over 1000% this year. Assuming that those who owned GameStop months ago sold their shares during this rise, they would be rewarded with hefty profits.
However, many retail investors, predominantly through influencers on social media, bought the stock at extreme values in the last few weeks in the fear they would miss out on more astronomical returns. Their reward for caving to the FOMO and diving into the trend? GameStop shares are at $91 USD as we write this, down from the high of $341 USD a week ago.
This brings us to our next point. The financial media may give the impression that this is reflective of the stock market as a whole, seeing as it is such captivating news, and truthfully, it was a very exciting week for us to watch from the sidelines!
The last few weeks reinforce an age-old saying, there are two very different games that occur in the stock market…‘short-term’ speculating and ‘long-term’ investing. Is there money to be made in short-term speculating like the media has focused on in the last few weeks, absolutely; but remember, there is a buyer for every seller and there is just as much capital to be lost permanently in short-term speculating. We have added a few links below if you would like to read more about this.
“This is not how David beats Goliath, he beats Goliath in the investing game by patience, diversification, sticking to a consistent plan, allocating money all the time no matter what is happening in the market, avoiding egregious fees, and not reading the newsletters and economic predictions of charlatans” – Josh Brown, Ritholtz Wealth Management
For those who work with us or follow us, you’ll notice this echo’s our guiding principles and practices for long-term investment success that remain core to our advice:
| Patience | Proper Asset Allocation |
| Discipline | Diversification |
| Faith in the Future | Disciplined Rebalancing of Assets |
Check back on Monday for Part 2, where we will look at the real story of two investors and how their financial journey was affected by emotions and behaviour over the long-term.
10 Signs you are not a YOLO Trader: https://awealthofcommonsense.com/2021/01/10-signs-you-are-not-a-yolo-trader/
