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 stock price has reached a low point, while greed prevents investors from selling when the stock price is high.
The recent activity related to the game company GameStop is a perfect example of how greed will get the better of many investors. Few will sell out of fear of missing out on the continued rise in shares and end up losing much of their profits + their initial investment when the company’s share price runs its course, which it most certainly will.
It is 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 taken a more conservative approach.
Fear also prevents many investors from buying shares when their price has bottomed out, so a savvy investor can take advantage of these fears by buying shares that have fallen in price. It is good for investors to check the stock market chart in the newspapers and the statistic to watch out for is the high and low price of the year. This will give you an idea of where the stock is.
If you are 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 other week. That way, when the share price drops, you will at least have bought shares at the lower price.
But there are only a few actions that this rule may not apply to.
GAME STOP
Gaming company GameStop has been in the news a lot lately (January 2021) due to its rising stock price and with so many investors jumping on the bandwagon, its stock 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 their slide.
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 goes well, that’s fine, and if the investment turns to 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 full 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 an xyz company, but may have paid only $100 for it, but will be reported to have lost $1,000.
It’s up to investors to do their homework and think and think about what they’re doing because at the end of the day it’s their money you’re playing with.
I can’t 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 shelf life, so only buy shares in this or similar speculative investments with money you can afford to lose.
After all, you wouldn’t go to Kumara’s races with the house deposit money.