Stonks & Entrepreneurship: What’s next for new investors after GameStop
What in the world is “TO THE MOON”?
The past few days have been a crazy whirlwind of squeezes, rockets, and even apes — all because of one company that we have forsaken during the pandemic: GameStop. On January 28th, 2021, in an ultimate war between hedge funds and everyday people, GameStop’s stock price exploded almost overnight past 400%.
So, how did this happen?
GameStop was a vulnerable target as a brick-and-mortar chain that was financially wrecked by the pandemic, and hedge funds placed bets on the company’s bankruptcy in order to sell and buy back shares for a profit. Redditors came in and stormed the market, igniting buying interest — miraculously boosting GameStop’s stock price and forcing hedge funds to buy back shares at a loss.
The fueling of tens of thousands of online people investing pocket change and life savings combined with investment firms losing billions in stocks resulted in a historical price boom. This phenomenon is known as a short squeeze and is the largest occurrence in 25 years. For context, the Volkswagen short squeeze during the 2008 recession followed a similar pattern.
Like how Netflix’s The Queen’s Gambit surged a record-high interest in chess, the “meme stocks” craze on social media has managed to bring young people to a traditionally corporate space. Millions of Americans were touching the stock market for the first time last week and learning new technical terms on the fly, scrambling to take part in a ‘financial revolution’.
However, the whole event was extremely sensationalized, as largely an exception to how typical stock market investing plays out. We may hear the tales of glory of the lucky few, but many are still in the rat race and losing. Once the stock craze is over and enough investors recoup their earnings and close their positions, GameStop will be left back in the rubble.
Speculation trading is only concentrated in namely penny stocks or searches for the next “unicorn” startup. Gamified volatile trading with high signs of reward posed as a tempting, addictive danger for many naive traders who were encouraged and pressured to “hold the line” on “Gamestonk”. (Full disclosure: I, too, held shares in GME.)
If you like entrepreneurship, you’ll probably like investing
Here’s three reasons why…
#1: Successful entrepreneurs are confident in their product and business and believe that it is needed in the world.
Being willing to make market decisions by understanding your customers and your market is indispensable. Similarly, investors need to have confidence in what they sink money into and believe in the company’s leadership and potential. You simply can’t master this without following the money and looking through the processes.
#2: Being an entrepreneur is all about acquiring and fine-tuning your business acumen.
Even without taking a college finance class, you can be able to gain the background knowledge needed to understand how businesses work! It’s like knowing how to sell a product online — you have to know what its market price is, along with what vendors will provide the best exposure, to have the best chances at staying competitive.
#3: Both entrepreneurs and stock investing require an in-depth comprehension of how businesses can be successful, when to take risks, and what goals should be planned for the future.
In a sense, starting a business is like starting a money-making stock plan. You watch for opportunities and strike at them when you can — sometimes winning and other times losing — and reflecting on every moment. You can learn to apply the same entrepreneurial skills into searching and finding the best companies to invest into without having to build an entire company from the ground up.
Investing goes beyond just the stock market too; you can invest in literally anything.
Similar to stocks, you can also invest in exchange-traded funds (ETFs), mutual funds, bonds, and more. As you gain more experience, you can build up and diversify your portfolio, and even seek investment opportunities in housing, or your own business!
What’s the big deal about the stock market?
Is your only stock experience with buying and selling turnips? Can’t distinguish the stock market from the stalk market?
Stocks, stocks, stonks. What does this all mean?
If you have personal savings or extra cash sitting around in an account, putting this money into the stock market can be a great way to grow your money over time. According to Standard & Poor 500, a list of the 500 most popular index funds in the U.S., the stock market yields an average of a 10% annual return on investments.
Although turnip prices are randomly generated day-by-day, stocks are all about determining company valuations as close as possible. All this industry data is public and online on websites like Yahoo Finance, which provides detailed portfolio data of specific stocks, and TradingView, a charting tool for detailed examination of stock health.
The goal of the game is to invest in stocks that aren’t priced correctly. That is, investing in stocks you believe might take off in the future due to recent developments or promises. Stock investing is basically placing “bets” on companies that you think might have potential.
“Stocks are investments in a company’s future success. When you invest in a company’s stock, you profit along with them.”
A huge part of successful stock investing is identifying and researching successful business ventures — knowing the in’s and out’s of what the company makes, their market dependencies, and overall health. If you’re hungry for more in-depth research, you can also look into a company’s stock exchange filings on the U.S. Securities and Exchange Commission’s website, or look up their quarterly results on an earnings calendar. All of these factors contribute to what determines the value of a stock. There are also plenty of resources out there online to help you determine what stocks to look out for, such as The Motley Fool.
Once you think you’re ready to invest in a company, you can buy and sell stocks on an online brokerage. Fidelity Investments and TD Ameritrade rank among the highest for beginner-friendly trading platforms with extensive research and trading tools. Popular mobile broker apps such as Robinhood, Webull, or Public offer commission-free stock trading, which attracts a huge millennial crowd for having a low barrier to entry.
Investing as a college student
So now that you know a little bit about how it works, why should you get involved?
As a college student and a young adult, perhaps you have been reeled into investing by friends or your interest has been piqued by social media. If you haven’t already, you might want to get your feet wet and learn about stock fundamentals. After all, with everything being on the Internet, it is very possible to think about financial security and build up a plan for the future. Even though we may be ‘broke college students’, saving up a little bit of your earnings and investing it can be a great way to learn more about personal financing and economics.
If your first exposure to the stock market was through GameStop, take a moment to stop and realize that most stocks are not as volatile and exciting. An important thing to note is that investing isn’t all about being bold and taking risks; it’s also about growing the money you put in and reaping the benefits.
That being said, as an investor, you will have to acknowledge that closely monitoring the ebb and flow of the market can lead to emotional turbulence. Hopefully, your aim is to invest for the long haul, and with enough background knowledge and research, you can be more informed on the companies you spend money on.
Concluding Remarks
At this point, we’ve established that you have an entrepreneurial spirit: one who isn’t afraid to take on risks and create new things. These traits are also necessary in stock investing and are expanded into many other people’s businesses rather than just your own.
With new technologies and globalism, it’s easier than ever for anyone to invest anywhere, and there is tremendous opportunity to become a better entrepreneur and even increase your wealth. The GameStop phenomenon may be just the beginning of a new wave of young traders, but amidst all the virality, make sure you stick to the facts and follow the money. After all, we like the stock.
Disclaimer: I am not a financial expert or even majoring in it. The opinions expressed in this article are for general informational purposes only and do not reflect on any opinions of Northeastern’s Entrepreneurs Club. This article is intended to provide education to people new to stock investing.
