Does the collapse of GameStop’s stock burn you? 5 ways to get back on track

GameStop Stock became fashionable in late January, after the video game retailer’s stock soared more than 1,400%, reaching $ 483 each on January 28. Traders on Reddit drove the jump at GameStop and other companies like AMC, Blackberry and Koss, and these actions became known as “meme actions“due to its ties to the online investment community and its exceptional volatility. But as quickly as these stocks skyrocketed, they fell, leaving many people in the red.

More people are investing thanks to commission-free apps like Robinhood and Webull, but there are risks when playing on the stock market. There are some who have capitalized on GameStop Roller Coaster, while others lost more than they expected. That money may be gone now, but through a better investment strategy, it can return.

Since the beginning of February, GameStop and other stockpiles of memes have only declined, with the exception of recent collision. Instead of liquidating your entire portfolio and just counting it as a loss, you can turn the negative into a positive by following a few simple steps.

Don’t chase your losses

Just like in the game, there is a need to quickly recover lost money. In the case of investing, this may mean putting more money, or even borrowing, to make one or two big moves that you hope will put you back in the positive. It may be dangerous.

“If you think an investment is worthwhile and has venture capital, you should do it,” said John Payne, senior futures and options broker at Daniels Trading in Chicago. “But never do this for the sole reason of recovering what you lost in a previous transaction. Each market decision needs to be independent of the previous one.”

Even though you may have lost a lot of money quickly, putting your portfolio back on the upside can take some time – and that’s okay. It may take months for you to recover, but if you run after the money that has already gone, you may find yourself in a deeper hole.

Resist investing FOMO

Professionals recommend that you try to separate emotions and impulses from investment decisions. The fear of losing, or FOMO, is hard to resist, but it can be costly if you give in.

“Many people saw these stocks go up, as well as many on their social media feeds making money, so they took action,” said Payne. “I imagine that many will talk about how much money they have made while others are holding losses.”

Experts suggest making decisions based on the data you have. Research where you are investing money and why. While GameStop’s example goes against this, fundamentals and finances are often important to a share’s value. Do not throw money into a stock just because it is a trend on Twitter.

Segment your portfolio

Diversifying your actions is something that professionals say is the key to making gains in your portfolio. Putting everything on GameStop, or any other company, is a dangerous risk.

“Instead of looking at your entire investment account as a ‘big’ pie ‘, segment it into two or three slices,” said Farron Daugs, CEO and founder of Harrison Wallace Financial Group.

Daugs says he has a slice of his portfolio dedicated to long-term investments that you want to keep for years. Another slice should be for stocks with a slightly shorter term, such as one year. So, if you can, have a third party, with the money you use to play stocks that go well in the short term, like a few months or weeks.

Understand why an action is “at stake” and moving fast

The stock market can be confusing, but changes usually happen for a reason (although it may not be so clear at the moment). A sudden increase in a company’s stock price may be related to some news that caught the attention of investors. Learning about these bits of data is important to return to the positive.

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

GameStop’s rise was atypical. It was unprecedented and you couldn’t predict it just by looking at the data. In his testimony before the Chamber’s Financial Services Committee, Robinhood’s CEO Vlad Tenev said that the stock’s performance is what analysts call a standard deviation event of five, or five sigma, and is about 1 in 3.5 million chance of happening. As a whole, fundamentally, the company was not doing well and was in the range of $ 15 to $ 20 per share in early January. When the stock exploded, people jumped unaware that a confused move by some hedge funds served as a catalyst. Some people did not realize that this would be a very short ride on the roller coaster.

“Typically, these stocks are not moving because they have suddenly improved their business and are expected to be more profitable,” said Daugs. “These are moving trains that can jump off the tracks quickly. You don’t want to be the last one to leave, because eventually the actions will return to their ‘true assessments’.”

Don’t be so greedy

There are no guarantees in the stock market. The fall in the stock of memes encapsulates this point perfectly. There just comes a time when you need to show some discipline and avoid being greedy.

“Be disciplined and have a sales strategy,” said Daugs. “Have a price in mind for both the positive and negative side of your shares.”

If you find yourself in a situation where you are on the rise, always be ready to hit the brake when things seem to go wrong. There is nothing to be gained from holding a falling stock for longer than all others.