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GameStop saga continues: 5 things you should know about market trends
With the mania over GameStop seemingly back on again, an expert has urged Aussie investors to think deep and plan carefully before buying into similar market trends.
GameStop saga continues: 5 things you should know about market trends
With the mania over GameStop seemingly back on again, an expert has urged Aussie investors to think deep and plan carefully before buying into similar market trends.
GameStop shares soared higher on Thursday, hitting US$172 and triggering yet another round of NYSE trading halts. The sudden resurgence of GameStop began just a day after it was announced the retailer’s chief financial officer Jim Bell will be stepping down on 26 March.
Despite noting in a filing with the US regulators that Mr Bell’s departure had nothing to do with the company’s activities or practices, Business Insider reported that Mr Bell was in fact ousted by a new board member, Ryan Cohen – an activist investor who bought up 9 million shares of GameStop back in December and now aims to transform the ailing retailer.
But with GameStop’s second wave now seemingly upon us, Dr Angel Zhong has warned Aussie investors to carefully consider their position and potential consequences before jumping on board this or similar trends.
Here are her five key points for your checklist:
1. There is no 100 per cent success rate in a get-rich-quick scheme
“You may believe that lot of retail investors make a fortune in GameStop, dogecoins or bitcoins. But please keep in mind that there is no 100 per cent success when investing in these volatile assets.
“Also due to attribution bias as a behavioural bias in finance research, people tend to attribute their success to skills and failure to luck. People also tend to tell other about their successes, but keep quiet when about their losses. So, what you see online about people making a lot of money from GameStop may not be the full picture!” Dr Zhong warned.
2. Market timing is not an easy task
Watching the crazy movement in GameStop, you might have been telling yourself, “If only I could have bought at the lowest price!”
This, however, is the result of a classic regret bias in behavioural finance, Dr Zhong explained.
“Remember, finance research shows that even professional money managers can find it difficult to time the market right, let alone retail investors.
“It may be easy to watch the price movement and contemplating trading strategies ex-post, but ex-ante, it is not just about finding the right stock, it is also about entering into a stock at the right time, which is a difficult task!”
3. Fundamental principle of valuation
In the long run, Dr Zhong explained, the price of shares is based on the intrinsic value of the fundamental aspects and future cash flows.
“In the short run, the stock market can fluctuate significantly. And it is difficult to time the market correctly each time. Having a long-term view is recommended in investment.”
4. History does not always repeat itself
“History does not always repeat itself.
“Seeing the start of the rising trend in GameStop does not necessarily mean that another big short squeeze will happen again. You can never guess what others in the market will do,” Dr Zhong cautioned.
5. Diversification is always the key
Irrespective of the number of investment tips, diversification is always the most important, Dr Zhong explained.
“Do not invest all your money in one stock. Diversify into a few more companies from different industries.
“Being a retail investor, it may save time to diversify by investing in ETFs that are exchange-traded funds managed by professional money managers. That means someone has diversified for you.”
According to Dr Zhong, there are a whole range of ETF and each serves a different purpose.
“For instance, for investors who want to do good to the society in investing, you can consider ESG ETF that invests in assets that are good in environmental, social and corporate governance aspects. That means you can diversify your investment and do good to the society at the same time!”
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