Good Friday morning dear reader!
It's been hard to ignore the wild and crazy stock market story this week. In many ways, it feels like a revolution is taking place in the financial world — a seeming David vs. Goliath story is unfolding, if you will.
Unfortunately, there are many Goliaths still profiting off the meteoric rise of GameStop stock (among others), not just poor fellows scouring Reddit each day.
And even more unfortunately, it won't be the Goliaths ultimately paying the price — sure, there may be a short-term blip in liquidity for the big hedge funds, but you can rest assured it'll be the small-time investor paying the price at the end of the selling line.
This is heartbreaking, despite my own internal temptation to take part. It's hard to see someone flaunt their 6,500% gain on social media and not want to take a piece for yourself.
Patience must overcome in these types of situations. Stick to the plan. Keep the ship steady. And keep your eyes on the long-term prize.
Stick to the Plan
We've discussed the whole budgeting and personal net worth growth philosophy over the last few weeks. With a picture of where you are standing now and a vision of where you want to be at the end of the year, you can budget your way from Point A to Point B.
This plan is fundamental when facing the temptation to jump into the volatile arena.
If you're starting with $100,000 of net worth now, aiming for 10% improvement in that net worth each year, and you work to improve your net worth over 30 years, you'll end up with an impressive $1.6 million in net worth. And if you read Toonie over the last few weeks, you'll know 10% isn't all that hard to achieve.
This type of plan is touted by many of the world's best investors and advisors. Warren Buffett himself recommends you purchase a low-cost index fund to help you reach your long-term retirement goals. You don't need to pick individual stocks to get there. And you certainly don't need to pick short-squeeze stocks to get there.
If you need hard proof, look at the return of the S&P 500 over the last 90 years. After 90 years, the S&P 500 returned an impressive 9.5% average annual return.
Improving your net worth 10% per year is far from impossible. You do not need to luck out and score a 6,500% return in a few weeks on GameStop or AMC to meet your long-term goals.
If You Must...
Really quickly, the elephant in the room:
If you insist in taking part in this short-squeeze calamity on GameStop or AMC, do your research. Understand what you're getting into. Understand the powers that are. Understand how shorts work, how short-squeezes work, and how you plan to get out when the time is right.
Make goals. Set limit buys and ensure you sell once you hit your goal.
I honestly, genuinely, from the deepest part of my heart, recommend staying away from this circus.
But for those who are far more daring than me, be careful.
You do not want to be the person at the end of that selling line.
I've worked hard not to get swept up in weekly news too much here on Toonie, but this week was just too much to ignore. I've had friends and family message me looking for quick ways to get their money into GameStop or AMC, and they're the type of people who never talk about investing.
I'm deeply concerned for those who don't know what's really going on.
It's been educational to watch. Comedic, even.
But it won't be funny for the person losing 6,500% either.
I wish you a healthy and prosperous week ahead. If you're in a district that is heavily restricted or lockdown, take care and know there is a light somewhere at the end of this long COVID tunnel.
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