The market has been rising since March 2020. Both stocks and cryptocurrencies have experienced significant gains in the past few months. Huge returns on penny stocks have attracted several traders who risk their equity on companies like Gamestop (GME), Blackberry (BB), and Nokia (NOK). These stocks have reached significant gains in the past few days due to the Reddit forum Wall Street Bets. After some of its users discovered a few hedge funds naked shorting troubled companies, these traders are on a mission to short squeeze these hedge funds. The movement started by these retail investors is responsible for the tremendous gains of those stocks. The euphoria of huge returns and the win against the hedge funds have brought more investors to these stocks.
Explore my personal finance blog for practical tips and advice on personal finance, investing, and wealth-building based on my personal experience and research.
Never Buy A Stock Because of Fear Of Missing Out
Analysts have been warning people about the market bubble we are in right now. They are advising people not to risk anything they cannot afford to lose. Despite these warnings, I invested in one of those stocks. As a result of this reckless mistake, I lost half of the amount I invested in that stock. While I always try to stick to value investing, seeing the tremendous returns from these penny stocks was enough to convince me to set aside a portion of my capital.
The fear of missing out on potential gains sometimes blind me into investing in a speculated stock. Last year, I bought NAS.OL and made some profits only to lose it all after the price tanked. Early this year, I made the same mistake and bought NAKD. I bought the stock based on emotions and without any research. I only realized my mistake after the stock hit stop loss. It is never a good idea to buy on dips in a speculated stock since there is always a chance that it will go bust.
This experience has taught me a lot of lessons. Firstly, I should never give in to my emotions since it will only cloud my judgment. Always be wary of hyped-up stocks because it may be a trap. Unlike investing, speculative trading can never provide you with consistent results. Manage your risk at all times, most especially when you are speculating. Lastly, It is better to invest in a high growth potential company with mediocre returns than a company with high returns with an unpredictable future. Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.”
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