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These days, all the eyes of the people of the finance world (and a lot of others, curious “regular” people) are glued on Gamestop.

A company listed on the stock market in the US, which businesswise is going through a horrible period.

Their business model based on re-selling 2nd hand video games is seriously endangered by the new generation of platforms that allows you to play on any device without using physical support.

Put that together with a pandemic that prevented people from going to shopping centers, and you can see how Gamestop is having a hard time from a pure business perspective.

On the other side, the value of the stock soared for a bunch of other reasons, mostly a bunch of people on a Reddit sub, Wallstreetbets, that started buying a lot of stocks and options to drive the price higher, coupled with a technical situation called short squeeze.

It doesn't really make sense to explain this in detail.

It is nothing interesting for a regular investor, but if you want to know more about this specific situation, Google and Investopedia can be your friends.

The bottom line is that the price of Gamestop had a meteoric rise, and these days is all over the place.

I have seen a +120% and -60% within 2 days.

Should you care about it and should you try to bring home a profit, or just ignore it and move on with your life?

The correct answer would be number 2.

But we are not machines so I am sure that you are wondering what to do in this situation.

Here are some random thoughts that may help you clarify your thoughts.

Do not believe the narrative 99% vs 1%.

From what I read these days, even on respectable sources, this one is a gigantic piece of garbage.

Indeed, most of the funds that are risking losing money because they are short are hedge funds, probably run and funded by rich people.

But thinking that no other rich people are on the other side of the trade, buying shares of Gamestop and making a profit, is naive at best.

They will also probably be the ones leaving the party just before the music stops.

What’s happening is much simpler.

A crazy battle among speculators on different sides, and some (misplaced) anger toward people who weren’t even around in 2008, when the financial disaster happened.

I am all in for better regulation and introducing more accountability at the high level of Wall Street, but buying stocks from your home will not do the trick.

You will have to get your hands dirty and do some real work if you want to change such a system.

2. Should you join the craze?

The answer to this question is very subjective.

As long as you are aware that you are not into a holy battle to improve capitalism, but you are trying to ride a speculative wave and you don’t invest too much, you will be fine.

With “too much” here I mean 5 to 10% TOP of all your net worth.

And actually, even this amount is incredibly high for one stock only, especially one completely detached by fundamentals that could be any place (good or bad) in the next few days.

Ideally, the 5 to 10% is how much you should devote to your speculative investments (if you feel like) and only a fraction of that 5% should go in Gamestop.

I get it that it is fun to feel part of something going well, especially in a period when, let’s be honest, there is not really a lot of stuff to do.

But for NO REASON put your financial future at risk because you want to buy an expensive lottery ticket.

3. I bought the stock, should I just hold it forever as people say?

Your money, your choice, of course.

But be aware that right now the stock is completely detached from its fundamentals and nobody knows where it will end up, especially in the next two weeks.

I do think that it will get slammed sooner or later, but I have no clue about the timing and for this reason, I will be happy to watch from the sidelines.

If you have no risk management system in place, get one.

Even something as simple such as:

"I will put an amount that I can 100% lose and will go out when I reach X value, with which I will get something nice for me."

It is not the best system I have seen, but even something like this is much better than let's just buy and hope for the best.

And be ready for HUGE volatility in the next few days.

4. I would like to get more information about this situation: any idea?

Matt Levine of Bloomberg is one of the best financial journalists around, and he has written a lot about this topic.

Unfortunately, most of his work now is behind the Bloomberg paywall, but you can subscribe to his free newsletter, Money Stuff, and be up to date with the Gamestop saga and a lot of other interesting quirks of the finance world.

As the last thing, even if I risk sounding like a broken disk.

Remember that preparing and following a good financial strategy, in the long run, will trump all the speculative fads that will happen and it will leave you in a much better place.

Boring, maybe, but it's doing the job way more often then gambling your money.

Most people think that "investing in the stock market" is the same as "buying a stock and hoping that will go up".

This approach is wrong for a few reasons (and I wrote an article explaining them, link in the comments) and today I want to show you a practical example.

Enter CDProjekt, the Polish software house which created Cyberpunk 2077 and recently joined the WIG20, the index with the biggest Polish companies.

A lot of people I know wanted to buy some of their shares. They were sure that Cyberpunk would be a success, and no price was high enough.

Then, the game went out 5 days ago, got mixed reviews, and a lot of unhappy clients.

What happened to the shares' price?

It dropped and kept going down.

I don't know enough about the gaming world and CDProjekt as a company to say if this is just a temporary setback or the beginning of the end.

But I can tell one thing for sure.

THERE IS a price that is too high, no matter how great you think a company is.

And if you don't have the competence to figure out what this price is, don't buy a single stock.

It is much better to get a broader knowledge of the investing world, build a plan based on your life and specific situation, and only at the end deciding which financial products to buy (hint: well-diversified ETFs).

The idea that the performance of the stock market is linked to the economy of a country is very popular.

In the long term (over 10 years) this relationship works, but in the short and medium-term everything is less clear and more confusing.

One of the most obvious examples is Poland.

Poland is a country that made huge leaps in the last 15 years in terms of wealth, income, and infrastructures.
But the main stock market (the WIG20) is at the same level as in 2003.

There can be many reasons for it.

For example, the WIG20 does not provide a clear picture of the Polish economy, because its main components are state-owned energy companies.
And in this period they are suffering a lot.

If we take a different index, focused on medium-sized companies, the sWIG80, the results change a lot (see the images below).

Therefore, it is necessary to pay a lot of attention to what's inside the stock market of a country, before deciding if they are the best option to represent the economy of a country.

That's why it's so difficult to choose ETFs on your own.
Sure, they replicate one index, but is it the right one for you?

Good luck answering this question alone.

And, if it wasn't enough, even when you take an index that looks right, as the S&P 500, the results can be surprising.

A clear example comes from JP Morgan's latest market guide, which analyzed the performance of the S&P components.

Which did better?

If you vaguely follow the financial news, you will not be surprised to see the FAANG and technology companies like Zoom or e-commerce companies.

But I don't think you would have ever expected the companies active in remodeling the house on the podium.

An unexpected consequence of the fear of a prolonged lockdown.

Who is instead in the group of the worst performers?

Again, airlines and hotels are names that come to mind immediately, and you would have been right about them.

But another category that is often in the newspapers and is suffering a lot, restaurants, is doing much better than it seems.

In fact, since the beginning of the year, restaurants as a group have been gaining 8%.

How?

One possible explanation is that if so many small competitors are closing, the big companies can take advantage of it.

This very elegant explanation is an example of "second-level thinking", i.e. trying to see beyond what is known to understand its implications.

It sounds convincing because it is said afterward, once you see the results.

But in March or April, during the lockdown, very few would have bet that these activities, however big, would have had a positive return in such a difficult year.

With these 2 examples, I wanted to show you how complicated it is to invest in the stock markets without a strategy and the humility necessary to approach a complex system.

A system in which all it takes is the change of one variable to change results and disprove forecasts.

And to think you can predict this by reading financial news or some article here and there online will have only one result: lose your hard-earned money.

If you want to avoid that, you can start reading some high-quality books on the topic (here I recommended some: https://simplinvest.net/10-great-books-about-investing-and-personal-finance/ ) or join my free newsletter, where you can find some not-yet-published content and the most interesting links of the week.

Join it here:

https://simplinvest.net/newsletter/

After a short break, tomorrow the Simplinvest free newsletter is back!

The topic will be: When less is more, even in investing.

If you want to know why having too many choices is bad for your investments, and what to do about it, subscribe here:

https://simplinvest.net/newsletter/

As a bonus, each week you will get not only original content not yet published anywhere, but also the best links from the sources I use, the latest articles of the Simplinvest blog and cool graph and images to be up to date with what's going on in the investing world.

What are you waiting for? ;)

Investing or Speculating?

That's a question that doesn't look like a big deal for a non-professional investor.

"Who really cares? I just want to make money!"

If you think this way...think again.

Knowing the difference between investing and speculation will not make you rich, but for sure it will help you avoid the beginners' mistakes when you buy some financial product (and it will prevent you to lose A LOT of money).

Want to know more?

Read the new article on the Simplinvest blog ;)

What's the difference between Investing and Speculating (and why it matters) | Simplinvest One of the first reactions people have when I told them I am an investor and I teach the basics somebody needs to have before become one, I hear very often this: "It sounds very cool, but investing is not for me. I know a guy who tried it and lost all of his money." […]

Are you sure the country where you live now will be able to pay some money when you retire?

If you are at least skeptical about it (you should), have a look at this interesting analysis of Visual Capitalist, which shows which countries have a solid and sustainable retirement system.

(spoiler: both Poland and Italy are not at the top of this list)

Combine this with the fact that there are more and more retirees whose retirement needs to be paid by fewer and fewer workers, and the final result is one.

You may get a pension much lower than you think today.

So, even if it feels like something far away in the future, now is the best time to think about your retirement.

And do something about it.

Especially saving and investing to make sure that you will be fine and you will not have to depend by the charity of other people when you turn 70.

Ranked: Countries with the Best and Worst Pension Plans As the global population ages, pension reform is more important than ever. Here’s a breakdown of how key countries rank in terms of pension plans.

Do you have what it takes to be a good investor?

For some people, being an investor means only having some money available "doing nothing" on the bank account.

Once you put it into a financial product, voilà!

Welcome in the investors' club.

Unfortunately, that is definitely not enough.

If you want to be a great investor not only you need to learn the "technical stuff" (at least the basics), but you also need to develope and nurture some psychological traits that can make the difference between the success and the failure of your investments.

Which one?

After studying this topic for more than 3 years, I selected 5 of them.

You will notice that you already have some of them, while on some others you will need to do some extra work, and that's ok.

In this new article not only you will find a description of these traits, but also practical advice on how to develop them.

Enjoy it and have a great weekend!

https://simplinvest.net/how-to-become-a-successful-investor-the-psychological-traits-you-need-to-develop/

PS: and if you want to have even more free content about investing, remember to subscribe to my free newsletter.

Every Sunday at 8 you will receive a new, not yet publish article and the best stuff I found online about investing.

Subscribe here:
https://simplinvest.net/newsletter/

How to become a successful investor: the psychological traits you need to develop | Simplinvest Have you ever wondered who an investor really is? The simplest definition I found is "somebody who invests his/her money". However, this definition doesn't take into consideration many important traits that can define an investor. Based on my experience, there are 5 psychological traits that you nee...

Reading books is a great way to start learning the basic concepts to invest your money.

But choosing the right books that can really help you (and avoid all the misinformation around this topic) is much harder.

"Investing book" is a label given to books that are talking about a wide range of topics: the psychology of the markets, speculation, dangerous financial products (such as derivatives), outright scammy books, and of course, the very best and more useful for you.

In this new article of the Simplinvest blog, I focused only on the latter group, and I selected for you the 10 best books you need to read if you want to learn the basics of investing (and go beyond that, too, if that's what you want).

If you want to know more, check it out!

(Link in the first comment)

Should young people avoid to invest their money, if they don't have a lot?

You may be tempted to answer no, but there are two good reasons for a young person to start investing very early.

Discover them in the new article on the Simplinvest blog,
a guide with the information somebody young need to know if they want to start investing.

(link in the comments)

To be a successful investor you need two ingredients.

- The right knowledge of the basics (30%)
- Know how to apply this knowledge to your situation and don't make "psychological" mistakes (70%)

A lot of people focus a lot on the first part, and they become obsessed with getting it right as much as they could.

But they forgot about the second one and they make huge mistakes that cost them a lot of money.

Want some examples? Here are 3 of the most common mistakes, that even professional investors make.

1. Customization of profits and losses

Think about the last investment decision you made.

Was it right or wrong?

Before you overthink it, you should know that using that question doesn't make sense.

When you define something as right or wrong you have expressed an opinion and changing it can be very difficult.

If the investment earns money, you'll feel very good.
If the investment loses money, you'll feel like a failure.

This way of looking at investments puts too much emphasis on the final result (impossible to control) and too little on the investment process to be followed to get good results as often as possible.

When your ego is too involved in the final result, you will spend your time "cheering" for your investment, rather than evaluating it objectively.

The only way to be truly objective is to decide on an investment process BEFORE you buy any financial product, including a plan on how to manage any downside.

Only then will your ego stay out of this situation and you will be able to make the best decisions, even the most painful ones.

2. Bad management of fear and hope

When you invest your money somewhere there are always two emotions that will pop up: fear and hope.

When you have a lot of money invested and the market goes up, you hope that it will continue like this, but you are afraid that it won't happen.

When you have a lot of money invested and the market goes down, you hope that sooner or later it will change direction, but you are afraid that it won't.

Unless you're a robot you can't avoid feeling these emotions, in real life and in your investments.

What you can do is limit their effect on your investments by using a precise plan, which tells you when and how much to invest.

Becoming a passive executor (and trusting the "past you" who created this plan for you) will greatly reduce your chances of making mistakes.

3 The herd effect, the mortal enemy of self-awareness

The "Right-Wrong" trap we saw earlier can become even deadlier if linked to the herd effect.

When a person is in a crowd, they can do things contrary to their best interests.

One of the most incomprehensible characteristics of a crowd is the tenacity with which members adhere to erroneous assumptions despite the growing evidence that challenges them.

There is no shortage of examples, both at beginner and professional levels.

From hodlers convinced that Bitcoin was worth $1,000,000, to professional investors who in the 2000s invested a lot of money on technology companies that made no profit and went bankrupt in a few months.

Every time you feel infallible, or you do something because "everybody is doing it", you're delegating your financial health to a group of people who don't know what they are doing.

Just like sometimes you find yourself with friends walking in an undefined direction and everyone is following someone else, but no one knows the final destination.

If you want to maintain self-control over your investment choices and avoid the herd effect, you need to limit your exposure to the herd.

So, ignore most of the economic news you read (mostly alarmist) and do your own research, or follow a small and selected number of sources to create your investment plan.

This way, you'll avoid getting caught up in euphoria and panic and keep a Zen eye on your investments.

And self-control will come as natural as breathing.

PS: One of the sources you should follow is my free newsletter. 100% free from noise and laser-focused on one thing only.

How to become a better investor (link in the comments)