Are you paying attention to what’s happening here? I’m talking about the tug-of-war between hedge funds and day traders with shares of GameStop.
“The rally has been fueled by investors encouraging each other on social media to pile into GameStop shares and options,” reports the WSJ. “The buying pressure has led money managers to switch out of substantial bets that the stock would fall, investors and analysts said. This resulted in a short squeeze, in which rising prices prompt investors to buy back shares they had sold short to cut their losses, pushing the stock higher still.”
From the WSJ:
Elon Musk mentions chat app Signal and the next thing you know a company that has nothing to do with chat goes through the roof.
“In another instance, a tweet by Tesla Inc. Chief Executive Elon Musk about the messaging app Signal sparked a rally in the share price of unrelated biotechnology company Signal Advance Inc.
“This is the new day and age in which no one listens to the analysts: ‘Why bother, let’s just go out and buy it ourselves?’” said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. “It is a sign of high complacency,” Mr. Andersen added, saying that the lack of concern about valuations reminded him of the run-up to the dot-com crash in 2000.
Still, Mr. Andersen says he doesn’t think the moves in companies such as GameStop portends trouble for the broader market, saying the “herd mentality” is confined to relatively small stocks.
Action Line: Pay attention to what’s happening here. Make sure you’re not caught up in the herd. Investing isn’t supposed to be a game.
Read Part II here.
Originally posted on Your Survival Guy.