Recently it’s been hard to avoid stock investment hype. Everyone’s been talking about how amateur Reddit investors drove up the cost of GameStop stock and beat Wall Street.
Financial websites gave daily updates on the situation and tried to predict which stocks were next. Many people invested their hard-earned money into GameStop and other popular stocks like AMC at the top of the market hoping that they would continue to go up.
GameStop stock has fallen from nearly $350 a share at its peak to only $50. Given that the company closed 462 stores in 2020 and was struggling before this recent surge, it’s unlikely that GME will go back up.
AMC has also fallen back down to $5.65 after its rapid rise to $19.90 per share on January 27th.
Although some people made thousands of dollars off of GME and AMC because they got in early, it’s likely that many more lost money. The reality is that by the time you’ve heard about a stock, it’s usually too late to invest and still make a profit.
Why You Should Avoid Stock Investment Hype
If you pay attention to stock investment hype and allow it to influence your decisions, you’ll probably end up losing money.
By the time media outlets are covering a particular stock, it’s typically already at its peak because so many people have bought in and driven up the price. Getting in at the top of the market means that you’ll lose a lot of cash when the hype is over and the price of the stock falls back down to normal levels.
If you invested in GME or AMC and didn’t turn a profit, the good news is that you can deduct your losses to offset your income taxes up to $3,000.
But if you want to build real wealth instead of losing money on risky investments, here are some steps you can take to avoid stock investment hype in the future.
How to Ignore Investing Hype
The best way to avoid stock investment hype is to stay offline.
Amateur investing forums like WallStreetBets encourage people to spend money on volatile stocks and assets, which won’t help you grow your money long-term.
For most people, building wealth takes decades and involves diligent saving and investing in vehicles that track the market like low-cost index funds. They’re typically a much better bet than risky, overhyped stocks.
It’s usually not possible for the average person to beat the market by day trading individual stocks. Even Wall Street investors who have access to lots of financial analysis tools often have a hard time outperforming the S&P 500.
In fact, in two 30-year studies, the S&P 500 outperformed fund managers 97% and 94% of the time respectively.
Trading stocks can be fun and exciting, but there’s a chance that you’ll lose most of your money. So I tend to view day trading as a form of gambling.
I only put around $20 into my Robinhood account so I could try my hand at day trading as a hobby. Although the recent hype around GME gave me a little bit of FOMO, I don’t plan on putting any more cash into Robinhood.
I know that the best path to wealth is lower-risk investments that track the S&P 500, so that’s where most of my money will be going.
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