Greed and fear in the stock market

"The markets are driven by greed and fear" is something financial commentators often tell us; What this essentially means is that fear prevents investors from buying when the share price has reached a low point, while greed prevents an investor from selling when the share price is high.

The recent activity related to the game company GameStop is a perfect example of how greed can beat many investors. Few will sell out of fear of missing out on the continued rise in shares and will end up losing many of their earnings + their initial investment when the company's share price takes its course, which it will undoubtedly do.

It is a case of investors using their common sense. Young people tend to be attracted to this type of livestock; I think probably because older investors have been there and have gone and taken a more conservative approach.

Fear also prevents many investors from buying a stock when its price has bottomed out, so a canny investor can take advantage of these fears by buying stocks that have fallen in price. It is good that investors consult the table of the stock market in the newspapers and the statistic to take into account is the high and low price of the year. This will give you an idea of ​​where the stocks are.

If you are investing through an online stock platform that allows you to trickle money into the markets, then you could say buy shares of the same company every two weeks. That way, when the share price goes down, you will have at least bought shares at the lowest price.

But there are only a few actions that this rule may not apply to.

GAME

Gaming company GameStop has been in the news a lot lately (January 2021) due to the rise in share prices and with so many investors jumping on the bandwagon, its share price has inflated well above its true value. It's only a matter of time before your stock price drops, but who knows when. Many investors are likely to jump ship accelerating their slide.

So is GameStop a short, medium or long term investment?

In my own opinion, it is none of the above; It's more of a speculative game where you use your discretionary income. If it comes out, that's fine and if the investment turns into custard, well, it was money you could afford to lose anyway.

By discretionary income, it is the money that you would have spent on alcohol, nights out, vacations, lottery, satellite television or whatever; If you lose your money, there is no harm.

The media does not give the full story when they report that someone lost X amount of money in the stock market when the price of a company's stock bottomed out. An investor may have had $ 1,000 worth of shares in an xyz company, but may have paid only $ 100 for them, but it will be reported that $ 1,000 was lost.

It is up to investors to do their homework and think and think about what they are doing because at the end of the day it is their money that they are playing with.

I cannot stress this enough; do not use the following funds to purchase shares in GameStop.

* House deposit

* Money saved to buy a car

* Money reserved for your child's education

* Money reserved for your retirement

* Money reserved for emergencies.

The Games Stop bubble will burst. It has a short useful life, so only buy stocks in this or other similar speculative investments with money you can afford to lose.

After all, you wouldn't go to Kumara's races with the money from the house deposit.