5 Lessons Learned by First-Time Investors from the GameStop Stock Saga
The GameStop stock—or GameStonk—saga opened up the stock market to many new investors taking their cues from Reddit’s WallStreetBets subreddit. There were a handful of success stories, like the Redditor who claimed they paid off more than $20,000 in student loans and the 10-year-old who turned a 2019 Kwanzaa gift into $3,200 from their GME stock. But many others quickly learned about the volatility of the market. Here are five investing takeaways from the GameStop stocks story.
Quit while you’re ahead
Have you ever gone on a tear at the roulette table only to hang around too long and lose it all or end up worse than where you started? Well, the same thing can happen in the stock market.
You want to make sure you’re protecting your profits. It may seem counterintuitive, but in the long run, you’re better off cutting your losses short than staying in the game too long and suffering devastating losses that you can’t rebound from.
Risky, are we? Just don’t risk too much
It’s a bit of a myth that it’s inherently risky to invest in the stock market, but still, nearly half of Americans don’t do it. The 2008 financial crisis and 1929 stock market crash are once-in-a-generation type of events.
It all comes down to what you use to invest. You don’t want to break the bank to play the stock market. Make sure you’re staying within your means. If you have funds set aside for investing in stocks, great. But don’t risk blowing your credit, losing your house, or reallocating your retirement savings in an attempt to get a quick win.
Study up before taking the plunge into the market
Twista might be able to make you a celebrity overnight, but it’s not so easy to become an overnight stock savant. Start by learning how to read the market through price action and charts. Reading books like A Beginner’s Guide to the Stock Market by former hedge fund manager Matthew R. Kratter, or doing some basic research on what smart money thinks about stock prices, can help you get a crash course on investing.
You don’t just want to understand the market, but also, you want to understand yourself and how these financial decisions will impact your life on a day-to-day basis. How risk-averse are you? How important is money to your self-worth? Do some self-reflection to make sure your financial well-being is in line with your emotional well-being.
It’s better to be boring than broke
They call it “playing” the stock market, but think of it more like Monopoly than Exploding Kittens. Instant gratification and investing don’t go together. Investing is supposed to be boring. (Sorry, Rich Uncle Pennybags).
Being a boring investor means buying broad-based index funds, maintaining a diverse portfolio, rebalancing annually, then leaving things alone to optimize your returns.
Avoid picking individual stocks
It’s not as easy to pick a winner as you might think, not to mention it can be difficult to rapidly get in and out of stocks by day-trading on Robinhood or the like, especially if your roboadvisor of choice shuts down trading on a particular stock. And if your lone investment goes belly up, you’re pretty much SOL.
If you feel compelled to go after individual stocks, at least make that a tiny portion of your portfolio, not the majority.
Casey is a reformed sports journalist tackling a new game of financial services writing. Previous bylines include Newsday and Philly.com. Mike Francesa once called her a “great girl.”