Greed and fear rule the markets
“The markets are driven by greed and fear,” is something we are often told by financial commentators; what this essentially means is that fear prevents investors from buying when the share price has reached a low point while greed prevents an investor from selling when the share price is high.
The recent activity concerning the gaming company GameStop is a perfect example of how greed will get the better of a lot of investors. Few will sell for fear of missing out on the continual rise of the stock and will end up losing a lot of their gains + their initial investment when the company’s share price runs its course which it undoubtedly will.
It is a case of investors using their commonsense. It tends to be the young who are attracted to this type of stock; I think probably because the older investors have been there and done that and have gone for a more conservative approach.
Fear also prevents a lot of investors from buying a stock when it’s price has bottomed out so an astute investor can take advantage of these fears by purchasing shares which have dropped in price. It is good for investors to check the share market table in the newspapers and the statistic to note is the high & low price of the year. This will give you an idea of where the stock is at.
If you are investing through an online share platform which allows you to drip feed money into the markets then you could say purchase shares in the same company every two weeks. That way when the share price is down you have at least bought shares at the lower price.
But there are just some stocks where this rule may not be applicable to.
The gaming company GameStop has been in the news a lot lately (January 2021) due to the rising share price and with so many investors jumping on the bandwagon its share price has been inflated well above its true value. It is only a matter of time before its share price slides but who knows when that will be. It is likely that a lot of investors will jump ship hastening its slide.
So is GameStop a short-term, medium-term, or long-term investment?
In my own opinion, it is none of the above; it is more a speculative play where you use your discretionary income. If it comes off that is fine and if the investment turns to custard, well it was money you could afford to lose anyway.
By discretionary income, that is money you would have spent on alcohol, nights out, holidays, the lottery, satellite TV, or whatever; if you lose your money there is no harm done.
The media does not give the full story when they report that someone lost X amount of money on the share market when a company’s share price bottomed out. An investor may have held $1,000 worth of shares in an xyz company but may have only paid $100 for them yet it will be reported that $1,000 was lost.
It is up to investors to do their homework and think and think about what they are doing because at the end of the day it is your money you are playing with.
I cannot stress this enough; do not use the following funds for purchasing shares in GameStop.
*House deposit money
*Money saved up to purchase a car
*Money set aside for your child’s education
*Money set aside for your retirement
*Money set aside for emergencies.
The Games Stop bubble will burst. It has a short life span therefore only purchase shares in this or other similar speculative investments with money you can afford to lose.
After all, you would not go to the Kumara races with the house deposit money.