To the moon. Diamond hands. You may have heard or seen these terms recently.
If you haven’t and are wondering, “simi lai eh?”, These terms came from the r / wallstreetbets community on Reddit and refer to a stock that is set to rise in value massively. The stock that is usually in question? GameStop.
What about GameStop?
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For those who don’t know what happened to GameStop or need a simplified summary:
- GameStop shares have been severely cut by financial institutions (betting on the decline in price)
- Some r / wallstreetbets members found the stock was undervalued and noted the stock’s sharp short selling.
- They realized that if enough people bought and held the stock to raise the stock price, financial institutions would lose billions and would be forced to buy the stock to cover their losses – which made the stock price even higher.
- This led to a so-called “squeeze” – a massive increase in the share price due to the constant need to cover losses.
- Investors picked up the tide and bought into the stock, with public interest and buying activity increasing as the stock price increased.
- The price of Gamestop increased from $ 17.69 on January 8, 2021 to $ 483 on January 28, 2021.
Investors suffered from success (greetings to DJ Khaled). There was too much huat to go around. There were expectations that the stock price would go up by the thousands, and investors were ready to strap themselves to their figurative rocket ships to see the stock price go “to the moon”.
However, on January 28, everything came to an abrupt halt.
Trading in stocks was suddenly restricted. Institutions began massively selling the shares to bring the price down and save their losses in hopes of getting people to sell. And it worked when the stock price continued to fall.
Many panicked and sold their stocks at a great loss, especially those who came late and watched their rise to the top. They likely would have missed the rebound to $ 264 on March 12 because they feared buying back.
As an investor who has watched the euphoria and chaos from afar, there are many lessons you can learn to better manage your money and emotions in the stock market and hopefully prevent you from suffering such losses in the future.
1. Invest what you are ready to lose
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The euphoria surrounding GameStop stock reached a point where people used their savings, grandma’s pension, and college loans. Siao, right?
Although some got lucky and went into banking, the vast majority suffered massive losses on money they couldn’t afford to lose.
Rule number 1 of investing – Invest what you are ready to lose. Anyway, you pretty much gamble with important money. Every investment has an inherent risk, and one must be willing to move forward even if the investment hits zero. This not game hor.
2. The market is unpredictable
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Nothing is a certainty in the stock market. People were happy with the $ 400 buy as they believed the stock would confirm it was going to the moon – it’s safe to say they were badly burned.
Expectations and goals are always good for feeling optimistic, but don’t get the attitude that your expectations confirm the first hit.
Just like buying Toto and 4D, there is always an element of luck. There will always be the possibility that something will happen out of nowhere, which will result in those expectations being dashed.
You will prepare for disappointment, and this can cause you to act emotionally when the stock price falls – for example, when you sell at a loss.
3. Keep your emotions in check
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It’s easy to get emotional when you lose money. Let’s face it, nobody likes their money disappearing from their account right away.
A strong emotional reaction can cause you to fold and sell stocks at a loss – possibly the biggest no-no when it comes to investing. Mai kan cheong, okay?
That’s why it’s also important to invest what you can afford to lose, as mentioned above – so that you can easily endure the loss of your chin and move on.
However, it can also work the other way around if you’re too happy with what you’ve made from a stock, which can make you get greedy and hold out for too long as you ride through the rise and fall. Sometimes taking profits is important, especially when you know the stock’s success may not last.
That’s why I didn’t invest in GameStop, even though I knew about it early on – I had foreseen that my greed would get the better of me and cause me to miss my opportunity to take profits, which burned me badly.
Doing a lot of research on a stock and having a lot of conviction in it can also help soften the emotions. On days when the stock has fallen, you can always refer to your research to help yourself remember why you bought it in the first place.
4. Investing is not a quick program to get rich
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Events like the GameStop debacle are one in a million. It took a combined effort of millions of retail investors to unleash pressure that skyrocketed stock prices in just a few days.
In reality, stock prices will rise over time – but you need to be able to weather the ups and downs of the process.
It is not a quick get rich program and should never be treated as one – investing should never be viewed as play or free money. You should never have feelings of FOMO and blindly believe that it will result in instant gains. If that’s what you wanted, you should just play Huat Pals.
Understand the risks involved in investing and own your decisions. Do it well and eventually it will be a lot easier to fund BTO or a resale apartment. Or maybe you can finally buy this Tesla. Or how about Sentosa Cove? Okay, lah, I’m getting carried away …
This article was first published in Wonderwall.sg.