THE GAMESTOP CRAZE
As many of you know, GameStop has been going crazy over the last two weeks.
It went from $2 to $480 within a single week, then dropped all the way back down to $63, so you can imagine what a roller coaster it has been.
After browsing Wall Street Bets, I found dozens of people posting about their losses. Some people even lost an astounding $700,000, or even half of their earnings, yet others are posting about how GameStop is not over yet and that there is still an opportunity for the stock to rebound.
So when it comes to investing, there are two main approaches that we will be highlighting in today’s post.
VALUE INVESTING VS. MOMENTUM TRADING
One approach to investing is Value Investing in which you make a decision based on facts, financials, and business performance.
This is the classic, straightforward, and slow method that Warren Buffett recommends, and this is also the method that I have chosen. I am a value investor.
On the other hand, we have Momentum Traders, who chase after a trend or fad and invest into penny stocks hoping that there will be one stock that makes them so rich that they won’t need to work anymore.
They will pay for their tuition and retire.
Surprisingly enough, these kinds of stocks really do exist.
Personally, I have met people that have invested into one stock that has made them so much money that it allowed them to retire within a matter of months.
When you think about that, it’s almost like winning the lottery, right? This is the exact reason why momentum stocks are so enticing to some.
Momentum trading is like playing a game of hot potato where you expect that there will always be a bigger fool that will buy your stock at a higher price.
This usually works very well and you will make a lot of money until the momentum runs out.
GameStop is a perfect example of this phenomenon, soaring from $2 to $480, to plummeting down to $60 in a matter of days, so you can only imagine the roller coaster it’s been for people who had invested hundreds of thousands, or even half of their portfolio into this in a short amount of time.
The reason I am a value investor and I do not invest in hype stocks, is because when the hype runs out and you are looking for a reason to hold onto your position, you will realize that there is no support in the decision you made and that your only support was really other people who decided to hop on the trend.
What happens if you want to make a quick buck and hop onto a hype stock just to find that the momentum dies?
You will be stuck investing in a stock at a high price, which is exactly the case for GameStop because the business has been dying for a while and the turnaround hasn’t taken place yet.
The company is not making a lot of money so the stock price should really be going down.
If you studied Fundamental Analysis and examined their financial statements, that would be the conclusion you would have arrived at.
When you lose such large amounts of money in GameStop, you may become traumatized, lose your confidence in investing because you think that it doesn’t work and that you can lose a lot of your money, and investing may seem more like gambling to you.
These are typical outcomes if you are making investment decisions based on gut feeling rather than cold hard facts.
If this has happened to you, it represents an opportunity for you to fundamentally change the way you invest in the market.
How would you justify putting in another $50K into the market next time?
You would likely be afraid to. If you only lost a little bit of money for GameStop and not a significant amount then you’ve learned your lesson the easy way.
However, if you lost a massive amount you may have experienced a high degree of trauma to the extent where you are unable to make your next investment, and there is a lasting impact on your investing journey, your retirement plan, and also your ability to make a sound decision going forward.
Normally after experiencing a big loss, one of our emotional responses is to try to earn it back as soon as possible, which may lead you to take on another risky trade that could lead to further losses.
The third category of investors featured in today’s post are the people that got really lucky and made money from these pump and dump high momentum stocks.
These are the people that feel invincible and very powerful because they invested in such a high risk opportunity and got away with it.
These are the ones that I worry most about because the next time they invest in the market, what are they to do?
Why bother investing in blue-chip companies?
Why bother waiting for a discounted price to get into a stock?
Why would I buy a stock like Google and Amazon for $1,000 when I can just buy a $1 stock and watch it go to $10 and times my account by 10?
It is this rewarding rush that you get from successfully exiting a penny stock that can drive you into bigger losses down the line.
If you have incurred losses on GME and feel bad about yourself and you cannot sleep, then I think you should exit and here’s why:
Despite the Wall Street Bets forum informing people to have diamond hands and hold onto the stock no matter what, if you look at the fundamentals GME as of this moment does not have support for such a high price.
It will be at least another five to ten years before the stock price will fully recover.
If you are distressed from GME losses and find that you are losing sleep over this, it is probably best to exit your position.
However, if you are comfortable and want to hold onto GME for a long period of time because you truly believe that their business will actually turn around and move to e-commerce, then that is great and perhaps you can hold onto it.
But as of right now, their business does not support this level of stock price, so you will be in danger by holding onto the stock. This will be an important decision for you to make.
The next time you choose to invest, it would be wise to invest into something safer and less volatile, so then you can have more predictable gains and adhere to a good rule of thumb for yourself.
Keep in mind that the higher the gain you are pursuing, the more unpredictable it will be.
If you want a predictable gain, it wouldn’t be something like 1000% within a couple of weeks.
In my experience, if you are looking for around 10% in the markets, that is achievable using stocks, and if you are able to use a strategy you can increase that percentage to around 20 to 30%.
So for the last two weeks, GameStop has been crazy. It went from $2 to $480 and within a week, and went back down to $63. So you can imagine what a roller coaster it has been. And I have been browsing on wall street bets, and I see a lot of people posting their losses. Some people lost $700,000. Some people lost half of their earnings, and some people will post that. GameStop is still not over yet. And that there's still an opportunity for the stock to rebound. So 96.4%. So if you haven't subscribed yet it is free and you can always change your mind in the future. And this month I'm looking to help 20 professionals without a financial background to master investing and target 30% a year. So they will be more details at the end of the video. Now, when it comes to investing, there are two main approaches.
The first one is value investing, where you make a decision based on facts, based on financials and based on the business performance of the company. And this is the boring old Warren buffet way. And that's who I am as well. And I'm a value investor. Now, on the other hand, you get momentum trader. So these are the people that chase after a trend, a fad, they invest into penny stocks and hopefully that there's just one stock that will make them so rich that they don't need to work anymore. They'll pay for their tuition and it would retire. And these kind of stocks are available. And I have met people that invest in one stock and made so much money, which basically allows them to retire within just a couple of months. And when you think about that, it's almost like winning the lottery, right? And that's exactly why it is so enticing because when people jump into these momentum stocks, it's like playing a game of hot potato that you expect.
There's always a bigger fool that will buy your stock at a higher price. And this works very well. And you will make a lot of money until the momentum runs out. And for GameStop, it is a perfect example because it went up like crazy within the last couple of weeks. And it dropped from four 80 down to $60 within a single week. So you can imagine the roller coaster that you must have gone through. If you're investing at a hundred, 200, 300 or even $400. And when I'm on wall street, that's I see people losing 700 K. I see people losing half of their portfolio in a short amount of time. I see people holding positions that are at three, $400. And this is really the main reason why I don't invest in hype stocks and why I'm a value investor when the hype runs out and you're looking for a reason to hold onto the position, you will realize that there's no support to your decision making your support was other people are jumping in.
So I want to jump in and make a quick buck. So what happens if the momentum dies, then you're stuck by investing at a stock at a high price. And this is really because for GameStop, the business has been dying. The turnaround hasn't really happened yet. The company is not exactly making a lot of money. So you can imagine the stock price should be going down. And if you study fundamental analysis and study their financial statements, that's probably the conclusion that you will come to. And when you lose such a large amounts of money and GameStop, you will become traumatized and you'll lose your confidence when it comes to investing. Because you think that investing doesn't work and you can lose a lot of your money. And it feels like gambling to you. These are symptoms that you're making investment decision based on gut feeling and not based on cold, hard facts.
And this represents an opportunity for you to fundamentally change the way you invest in the market, because how do you justify yourself to put in another 50 K into the market next time? Just because someone else is also jumping into the stock, you become really scared. And if you only lost a little bit of money for GameStop and not as great, and you've probably learned your lesson the easy way, if you lost a lot of money and you become traumatized and you're unable to make your next investment, there is a lasting impact on your investing journey, your plan to retire early, and also your ability to make a sound decision going forward. Because after making a large loss, one of our emotional response is to try to make it back as soon as possible. And the next thing you would do is to try to take on another risky trade, which may lead to further losses.
Now, the third category of people is really people who got lucky and made money from these hump and dump high momentum stocks, because you have made money from these puppet dumb at high momentum stocks. It makes you feel invincible. It makes you feel very powerful because you invest it in such a high risk opportunity and you got away with it. And these are the people that I worry the most because the next time when you're about to invest in the market, again, what are you going to do? You're going to think to yourself that I can invest in a penny stock and make a ton of money. So why do I need you to bother investing in blue chip companies, not as safe? Why do you want me to bother waiting for a discounted price to get into a stock? What I can just participate in these pup and up, why do I need to buy a stock like Google and Amazon, not as like a thousand dollars where I can just buy a $1 stock and watch it go to $10 and 10 times my account.
It is this reward that you get from successfully exiting a penny stock, which can become the fuse for bigger losses down the line. So if you have incurred losses on GME and you feel really bad about yourself and you can't really sleep, then I think you can exit. Now, of course, if you go to wall street beds, they'll tell you to have diamond hands to hold onto it, no matter what, but if you look at the fundamentals, as of right now, GME, doesn't really support such a high price, and it will be five to 10 years before stock price fully recovered. So if you're a traumatized because of the losses and you can't sleep, then it's probably a good idea to exit your position. But if you feel really comfortable and you want to hold on to GME for a long period of time, because you think that business will actually turn around and they're moved to go to e-commerce, it's great.
Then perhaps you can hold onto it. But as of right now, the business does not support this level of stock price. So then you will be in danger by holding onto the stock, but this will be an important decision you make. And the next time when it comes to investing is probably a good idea to invest in something safer, something less volatile. So then you have more predictable gains adhere as a good rule of thumb for you. The higher the gain you're aiming for the more unpredictable it is. So if you want a predictable gain, it wouldn't be something like a thousand percent within a couple of weeks. In my experience, if you are looking for around 10% from the markets that is fairly reasonable using stocks. And if you're looking to use a more of that strategy that I think 20 to 30% is fairly reasonable.
So I'll see you in the next video. So when it comes to investing, my vision for myself is to make 30% a year. And if you want to aim for this target as well, then I have prepared a nine question quiz for you to become a successful investor. So this is a health check. And if you can answer all nine questions, then you'll be on your way to be a successful investor. So this includes what's your stock selection process. What's your risk management process. What's your portfolio management process entry, exits profit multiplying mechanism. And how do you deal with the market crash? And do you have a strategy to reduce your capital gain taxes when you make money? So if you want me to take a look at your investing strategy, then you can email email@example.com. And I'll give you some comment on your strategy and we might even hop on a call.
So if you want to understand how I address these questions, then you can grab the four hour free training on my website. And this is perfect for you. If you are a busy full-time professional without a financial background, and you want to learn how to manage your own portfolio and you want to target 30% a year. So he can go to my website five minute investing.com/free case study. And after you learn how to invest, these are some of the success stories. We have an investing accelerator where Mike made 47% from Altrix in seven weeks, Florence made 64% from Altrix and 2.5 weeks and area and made 59% from Altrix in what month. So these are the students within investing accelerator. And this month I'm looking to help an additional 20 professionals without a financial background to master investing and target 30% a year. So if you're interested, go watch the free case study first, and then you can hop on a call to see if you are a good fit in terms of the giveaway in this video, I'm going to be giving away one of my favorite books. The one thing,
The surprisingly simple truth behind extraordinary results by Gary Keller.
You want to get this free book and just gently tap on the like button and leave a comment below and say, you want the book or an interesting comments as well. And after we reach a hundred likes, I'll select a winner. So that's it for this video. And I'll see you in the next one.