Is GameStop’s stock collapse burning you? 5 ways to get back on track

GameStop Stock became all the rage in late January after shares of the video game retailer soared more than 1,400%, peaking at $ 483 each on Jan. 28. Traders on Reddit spurred the leap of GameStop and other companies, such as AMC, Ripe and Koss, and these actions became known as “same stocks“because of their ties to the online investing community and their exceptional volatility. But as quickly as these stocks exploded, they came crashing down, leaving a lot of people in the red.

More and more people are investing through commission-free apps such as Robin Hood and Webull, but there are risks involved in the stock market. There are those who took advantage of the GameStop Roller Coaster, while others lost more than expected. That money may be gone now, but with a better investment strategy it could come back.

Since the start of February, GameStop and other memes stocks have only dwindled, with the exception of the recent bump. Instead of liquidating your entire portfolio and seeing it as a loss, it is possible to turn the negative into the positive by following a few simple steps.

Don’t run your losses

Just like in gaming, there is a urge to quickly get your lost money back. In the case of investing, that can mean investing more money, or even borrowing, to make one or two big moves that you hope will put you back in the positive. This can be dangerous.

“If you think an investment is worth it and you have the venture capital, you should do it,” said John Payne, senior futures and options broker at Daniels Trading in Chicago. “But never do it for the sole reason of recouping what you lost on a past trade. Each market decision should be independent of the last.”

Even if you’ve lost a lot of money quickly, getting your wallet back to a positive state can take a while – and that’s okay. It may take months for you to recover, but if you chase money that is already gone, you could end up in a deeper hole.

Resist the FOMO investment

Professionals recommend that you try to separate emotions and impulses from investment decisions. It’s hard to resist the Fear of Missing Out, or FOMO, but it can get expensive if you give in to it.

“A lot of people saw these stocks increase, as well as a lot of people on their social media feeds making money, so they jumped,” Payne said. “I imagine many will talk about the amount of money they have made while others are being left behind.”

Experts suggest making decisions based on the data you have. Find out where you are putting the money and why. While the GameStop example flies in the face of this, fundamentals and financials generally matter to a stock’s value. Don’t throw money at a stock just because it’s trending on Twitter.

Segment your portfolio

Diversifying your stocks is something that professionals consider essential for making money in your portfolio. Putting everything in GameStop, or any business, is a dangerous risk.

“Rather than seeing your entire investment account as one ‘big’ pie,” segment it into two or three slices, ”said Farron Daugs, CEO and Founder of Harrison Wallace Financial Group.

Daugs says to have a slice of your portfolio dedicated to long-term investments that you want to keep for years. Another installment should be for stocks that are a bit shorter in term, like one year. Then if you can, have a third party, with money that you use to gamble with stocks that are doing well in the short term, like a few months or a few weeks.

Understand why a stock is “ in play ” and evolves rapidly

The stock market can be confusing, but changes usually happen for a reason (although it may not be so clear at the time). A sudden spike in a company’s stock price may be related to certain information that has caught the attention of investors. It is important to learn about these bits of data to get back to the positive.

“If you fully understand why a stock is moving, you will also have a better idea of ​​the risks involved in buying the stock,” Daugs said.

The rise of GameStop was atypical. It was unprecedented and something you couldn’t predict just by looking at the data. In his testimony to the House of Representatives Committee on Financial Services, Robinhood CEO Vlad Tenev said the stock’s performance was what analysts call a five standard deviation or five sigma event and had about a 1 in 3.5 million chance of it happening. Overall, fundamentally the company was not doing well and was in the $ 15-20 per share range in early January. When stocks exploded, people jumped on them unaware that a confusing game of certain hedge funds served as a catalyst. Some people didn’t see that this was going to be a real little roller coaster ride.

“Typically, these stocks don’t move because all of a sudden they’ve improved their business and should be more profitable,” Daugs said. “These are moving trains that can jump off the rails quickly. You don’t want to be the last to go because stocks will eventually revert to their “true valuations.”

Don’t be too greedy

There is no guarantee in the stock market. The drop in the stock of memes sums up this point perfectly. There just comes a time when you have to be disciplined and avoid being greedy.

“Be disciplined and have a sales strategy,” Daugs said. “Keep a price in mind for the upside and downside potential of your stock.”

If you find yourself in a situation where you are fat, always be prepared to brake when things seem to be heading south. There is nothing to be gained by owning a stock that is trending down longer than everyone else.