Day trading…cryptocurrencies…GameStop – What the heck is going on?

gamestop sign store front
Written by jharrell on February 17, 2021

Jeffrey A. Harrell, CFA | Director of Portfolio Management

Investing euphoria is back!!!

For many of us, it seems not a day goes by that doesn’t now include a discussion with a close friend or family member regarding day trading, cryptocurrencies, or the new topic of the month…GameStop. It cannot be denied that the popularity of investing on such a mass scale is reaching levels we have never seen in history, including the late 1990s. What seems different this time as compared to previous market frenzies is the sheer volume of individuals with a personal “get rich quick” story (few people share their “get poor quick” stories).

Although investing has been growing in popularity for the past couple of months, it reached a new level a couple weeks ago when a group of online message boards set their sights on shares of GameStop causing a “short squeeze”. By now everyone is aware of what happened, so we aren’t going to discuss the situation further. There are countless articles you can read that explain how this phenomenon occurred. Our only reason for even mentioning this is to make sure you are aware of how we believe investors should be reacting to these events.

Throughout history financial markets have experienced countless boom and bust cycles. These periods are always explained perfectly with the benefit of hindsight. However, what can seem obvious when reflecting back through the lens of time, more often than not feels very different while the actual events are unfolding.  We do not believe this time will be any different.

The current trading frenzy we are seeing around a host of highly speculative stocks is due to a combination of factors that are being hotly debated. Regardless of the root cause, the action we are advising our clients to take is to simply “ignore the noise”. Admittedly this can become harder and harder the more personal acquaintances you have getting into the fray. Since no one can possibly predict how much longer this can go on, try taking a rational approach to the situation by simply asking yourself this question. Do you think many years from now millions of individuals will look back on this environment and talk about it as a once in a lifetime investment opportunity, or will the narrative be something a bit more ominous? Only time will tell.

Controlling your emotions during times like these has always been a hallmark of successful long-term investing. If you are on board with our recommendation to “ignore the noise” and stay the course, great. If you are still struggling with the emotional pull to participate in the euphoria, we offer a couple additional resources:

1.     Check out our other article this month, Stop trying to time the market. It speaks volumes to the benefits of a systematic approach to investing that has stood the test of time through countless market cycles. Click here.

2.     Watch our 2020 Q4 investment commentary webcast recording. In it we discuss both bullish and bearish talking points and provide a recommendation on how to navigate these unique times. Spoiler alert…stay diversified. Click here.

We hope these can help bring clarity and peace of mind to what is unquestionably a unique time in the history of not only America, but the entire world.