Is GameStop worth it?

We’re just two months in, but 2021 has already become the year that has taught us the risks and dangers of speculation on the stock market.

Amateur investors eager to make a fast buck dived into buying shares in the world’s largest videogame retailer GameStop, after rave recommendations for it and four other stocks by some traders on the social news platform Reddit.

The feeding frenzy that ensued drove GameStop shares up 700% to a record high of $513.12 on January 28. Investor joy was short-lived, however, as what went up also came down: GameStop plummeted by 90% and between them, the five stocks lost over $36bn in the following week.

The UK was not untouched by the whole affair, and some of our amateur investors panicked.

Concerned parents looked on in despair as their teenage children poured their wages into GameStop stock, only to see it all go south.

In deepest Suffolk, a bewildered lady with the unusual surname of Hedges-Stocks was snowed under with pleas for financial guidance from worried investors who had seen her on Twitter. Taking it in good humour, Miss Hedges-Stocks declared she knew more about privet hedges than hedge funds, and said of the stock market “it’s just gambling – isn’t it?”

At Bow Financial Services, we don’t gamble

We understand that trying to make a quick killing on the stock market, based on popular sentiment about this month’s faddish hot stock, is almost certainly a sure-fire way to get burned. If it sounds too good to be true, it usually is, and the GameStop debacle has simply proved that yet again.

Stock market investing is a long game. 

Yes, of course there is always an element of risk, and we all know the old caveat: the value of investments can go down as well as up, and you may well come out with less than you put in.

However, with a long-term approach, where you take good advice, stick to your guns, refuse to be panicked, and hold don’t sell, history shows that stocks almost always outperform cash.

The temptation to attempt to time the market is a strong one, but you have to remember the wisdom of the US entertainer and wit Will Rogers, who summed it up thus: the trick is to buy stocks when they are going to go up, and when they are going to go down, you should sell them.

Oh, if it were only that simple.

His words were inspired by the economist Paul Samuelson, but Rogers failed to mention the real core of Samuelson’s philosophy: he also knew that investing is a long game, and he said it should be like watching paint dry, or watching grass grow.

These points did hint at the folly of trying to predict short-term market movements. 

There are no rules to guide you.

When you think about it, if there were rules to reliably time the market, everyone would be in on it. Nobody would want to buy your shares when they’re approaching the top, and nobody would sell their shares to you when they’re at the bottom.

Sir Steve Webb, David Cameron’s former pensions minister, has also weighed in to warn investors not to panic in the face of short-term market movements. He said that those who did panic and sold in the depressed markets of the past year will have done very badly, whereas those who held their nerve and awaited the gradual recovery will have fared much better.

At Bow Financial Services, we advise our towards patience and a long-term financial plan. Above all, we counsel them not to go it alone. When minimising risk in your financial plan, it is always better to act with professional advice!