First, a moment of silence for GameStop retail investors.
Within eight days, GME rose to an all-time high of $347 before plunging to its death at $53. I like to call it stock market gymnastics. It is a fascinating story of money and tears, and there are many lessons to be learned.
Reddit, popular media and Elon Musk caused the stock’s volatility.
More specifically, GME’s volatility was caused by the subreddit r/WallStreetBets. A user named Keith Gill, or u/DeepFuckingValue on Reddit, took a chance on the stock believing it was undervalued. Gill was one of the few that got in early, and with an initial investment of $53,000 was up almost 46-million dollars in unrealized gains in late January.
A narrative was created on Reddit about GME being heavily shorted by several large hedge funds. The result was a flawed but noble premise — GameStop is our chance to shove it to the hedge fund billionaires.
The idea was that if retail investors held their shares, the hedge funds who shorted GameStop would have to cover their short positions and it would cost them billions. It worked by the way — Melvin Capital, a large hedge fund, lost billions of dollars in February.
The flaw here is that while r/WallStreetBets cost some hedge funds billions, other investment firms with substantial long-term holdings were made even richer.
When the media grabbed hold of this story, we saw millions of people around the globe investing in GameStop like it was some sort of social justice movement. Cumulatively they lost millions of dollars — for some, reportedly their entire life savings.
So what can we learn from this noble, flawed and heart-wrenching story? I’ve been an investor for several years and these are some of the lessons I’ve learned along the way.
One, never invest more than you can lose entirely.
This is the most important advice you can receive about investing. Some young investors threw in their entire savings for a “YOLO bet” on GameStop only to lose everything.
Make small incremental investments that you can afford to lose, and build positions over time.
Two, control your emotions.
Stock market trading is not an opportunity to stick it to the man or, in this case, billionaire hedge funders. Investing is a way to grow your money — it is not a protest and it is not a forum for creative liberation.
Keep your emotions out of your investment portfolio.
Fear of missing out is the shortest path to a bad decision. There are countless opportunities to invest your money. You are not missing out by exercising proper due diligence.
Third, in the words of American billionaire entrepreneur Mark Cuban, “Do the work.”
No one can predict the market — anyone who tells you they can is lying. The best you can do is understand the industry you are investing in, the company’s financials and their competitors. Due diligence is the foundation of good investment. You need to do your own price evaluation and have an entry and exit strategy.
Fourth, don’t make bets — make investments.
The stock market is not a casino. Follow the advice of investment titans like Jack Bogle and Warren Buffet. They advocate leaving your money in the market for slower, safer returns instead of swing trading or day trading.
Buying and holding blue-chip companies, like Apple or Microsoft, is a good way to do this.
So while the GameStop saga was nothing short of a disaster, perhaps we can salvage these important lessons. Good luck out there.
This op-ed was written by a University of Saskatchewan undergraduate student and reflects the views and opinions of the writer. If you would like to write a reply, please email firstname.lastname@example.org. Adam Brown is a fourth-year undergraduate student studying regional and urban planning and an avid investor.