‘Losing money is not a joke’: GameStop drama drives interest in financial literacy — the most important takeaway of all
The recent trading bonanza on meme stocks like GameStop GME,
In the wake of GameStop shares hitting a high of $483 on Jan. 28 — it was down to $60 by market close on Monday — financial literacy experts hope that’s the case for anyone who’s been swept up in the frenzy.
Medina Camacho lives in Sacramento, Calif. and has traded on and off since 2018. He acknowledged he may have rushed into the purchase, spending roughly $550 for his 36 shares of AMC and $600 for his three GameStop shares. He bought the stocks between Jan. 27 and Feb. 3, he said.
At Monday’s market close, Medina Camacho was down more than $700 on his shares of AMC Entertainment AMC,
Now his plan is to hold the stocks to see what’s next, especially as mass vaccination efforts hopefully send moviegoers back to theaters. Another strategy is to get ready to average down — buying more of a stock at a falling price to lower the cost basis per share.
“I should have had more patience before jumping in,” he told MarketWatch.
Like many others, he’s angry at Robinhood, one of the investing apps he uses, for limiting trades at one point. He left open the possibility that he could also be angry at himself.
So is he done playing the market? Nah.
“It doesn’t discourage me from trading in the future,” Medina Camacho said.
In fact, he wants to learn more.
He is hardly alone. Approximately 44% of 1,600 self-directed investors in GameStop and AMC had less than a year of experience trading and another quarter had up to two year’s experience, according to a survey from Cardify, a consumer data firm; perhaps more worryingly, 45% of surveyed investors said they were seeking a quick financial profit, the survey said.
Financial literacy experts express worry and delight at GameStop
Medina Camacho’s readiness for risk is unchanged; he only trades with money he’s ready to lose, he said. But he wants to coach himself to think more long term and learn more about the fundamentals of companies. Medina Camacho already looks at whether a stock is overbought or oversold to spot possible bargains and smart sales.
He also wants to stay current on what people are saying about stocks on Facebook FB,
But isn’t that last part just buying into buzz that could potentially leave Medina Camacho at a loss again?
“If there’s an opportunity, I take it,” he said. “There’s always money to be made in these types of trend and hype stocks.”
And that’s why some financial-literacy experts say the GameStop saga might be a blessing and a curse. It is juxtaposing an appetite for gains with a financial literacy knowledge that — up until now at least — has been lacking nationally.
The uneven combination could put new investors in serious financial peril if things go wrong.
‘Broke Millennial Takes on Investing’
“It’s encouraging to me that an interest in learning about investing is spiking,” said Erin Lowry, author of the “Broke Millennial” book series on personal finance. “But hopefully this event isn’t making it seem like the market is rife with ‘get rich quick’ schemes for a typical rookie retail investor.”
As the GameStop trading crescendoed, Lowry noticed a jump in sales of her book “Broke Millennial Takes On Investing.”
“While I have some concern about the full aftermath of GameStop, it does seem that it’s given a renewed sense that the average person with no financial background or Wall Street experience can invest,” she said.
Don’t miss: These are the top TikTok accounts that are fueling the stock buzz for younger investors
Retail investing was already on the rise in 2020, long before GameStop trading took center stage. Investors opened 10 million new brokerage accounts in 2020, a year that gave rise to the term “retail bro.”
But only 55% of Americans said they owned stock according to a Gallup poll last year, which is roughly the same ownership rate as the past 10 years.
Around the same time period, the FINRA Investor Education Foundation said from 2009 to 2018 there was an 8% drop in people who could answer most questions about interest rates, inflation, bond prices, financial risk and mortgage rates, going from 42% to 34%.
Bottom line: There’s a link between “financial fragility” and weaker grasps on financial basics, a recent study said.
‘Only invest with the money you can afford to lose’
On Friday, a trending thread on WallStreetBets went by the title “people in this sub need to understand that you only invest with the money you can afford to lose.”
“I can see comments of [a] single mother putting her life savings in and college kids borrowing money at a very high interest, and going all in,” the original poster said. “This is not a joke. Losing money is not a joke. If you get a loan and buy a stock, you are at a risk.”
“The need for investor literacy and, by extension financial literacy as a whole, is still paramount,” said Ken Zendel, CEO of the National Association of Investors, a nonprofit organization geared towards investor education, which had growing membership in 2020.
“Far too many are missing out on the basic building blocks
of wealth creation because of lack of knowledge, exposure and opportunity.”
The last couple of weeks “has once again shown the power of
the individual investor,” said Zendel.
Like Lowry, Zendel sees a mixed bag in the meme stocks. “We’re hopeful people didn’t get burned in this situation, it piqued their interest in the market and they learned about the need to invest rather than gamble,” he said.
Zendel had a bit of advice for Medina Camacho: “Ignore the noise of the get-rich-quick schemes and invest in the long term.”
“It’s good advice,” Medina Camacho said. Still, he added, if
investors keep their eyes on stocks to know what’s potentially being overbought
and oversold, “you can make money.”
