Investors urged to be cautious buying into stock market frenzy
TORONTO -- It’s been a case of David versus Goliath on the stock market over the past week as smaller retail investors banded together to take on large hedge funds costing some billions of dollars.
For some new investors to the stock market it can look like there is easy money to be made, but there is a concern some are seeing the market more like a casino than a place for long-term investments.
Some of the stocks that received a massive boost in their stock price, including GameStop, AMC and Blackberry, have seen their values tumble within days of soaring.
GameStop which hit a high of $US483 last week was down to $US90 today.
Some investors have been using Reddit to choose sectors to target and on Monday they decided to buy silver, which caused some silver companies to jump in value by more than 30 per cent on the TSX yesterday.
Those same stocks fell by about the same amount today.
“I definitely caution anyone from putting their money into one company, one sector or one particular industry," said Pattie Lovett-Reid, CTV‘s Chief Financial Commentator.
Lovett-Reid cautions that smaller investors hoping to make easy money could just as easily lose a lot. While it may appear a group working together can raise the price of a stock, the last ones holding it face a huge risk.
Many in the investment community are urging younger retail investors to be careful as timing the market is extremely difficult to do, even for a professional money manager.
“Chasing anything impulsively is always a dangerous thing to do in investing," said Stephen Rogers, Investment Strategist with IG Wealth Management.
Companies like IG Wealth Management say diversified portfolios with habitual contributions is always a safer bet over the long haul.
“Let time work on your side. The statistics and the academic research shows it is very clear that time in the market is what builds wealth," said Rogers.
Lovett-Reid agrees adding “I believe boring is beautiful. Have a diversified portfolio, be prepared to pay yourself first and hold for the longer term."
Following a longer term strategy you may not see a massive increase in a day, but you'll build wealth overtime with a lot less stress, volatility and risk.
A common mistake for novice investors is to buy or sell something because of a dramatic rise or fall in a stock or the market in general.
It's best to do your own independent research or seek the advice of a professional.