Greed and fear rule the markets
“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 investors from selling when the share price is high.
The recent activity related to the game company GameStop is a perfect example of how greed will get the best of many investors. Few will sell for fear of missing out on the continued rise in the stock and will end up losing much of their profit + their initial investment when the company’s share price runs its course, which it certainly will.
It’s a case of investors using their common sense. It is usually young people who are attracted to this type of action; I think probably because older investors have been there and done that and have taken a more conservative approach.
Fear also prevents many investors from buying stocks when their price has bottomed out, so an astute investor can take advantage of these fears by buying stocks that have fallen in price. It is good for investors to check the stock market chart in the newspapers and the statistic to look out for is the high and low price for the year. This will give you an idea of where the stock is.
If you’re investing through an online stock platform that allows you to pump money into the markets, then you could buy shares in the same company every two weeks. That way, when the stock price goes down, you will at least have bought shares at the lower price.
But there are only some actions to which this rule may not apply.
PLAY STOP
Game company GameStop has been in the news a lot lately (January 2021) due to rising stock price and with so many investors jumping on the bandwagon, its share price has inflated well above its true value. It’s only a matter of time before its share price drops, but who knows when that will be. Many investors are likely to jump ship accelerating its downfall.
So, is GameStop an investment in the short, medium or long term?
In my opinion, it is none of the above; it is more of a speculative game where you use your discretionary income. If it works out, that’s fine, and if the investment turns into custard, well, it was money he could afford to lose anyway.
For discretionary income, that’s money you would have spent on alcohol, nights out, vacations, lottery, satellite TV, or whatever; if you lose your money, there is no harm.
The media doesn’t give the whole story when they report that someone lost X amount of money in the stock market when a company’s stock price bottomed out. An investor may have had $1,000 worth of shares in company xyz, but may have paid only $100 for them, but $1,000 will be reported 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 their money that they are playing with.
I cannot stress this enough; do not use the following funds to purchase stock in GameStop.
* House money deposit
*Money saved to buy 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 lifespan, so only buy shares in this or similar speculative investments with money you can afford to lose.
After all, you wouldn’t go to the Kumara races with the house deposit money.