Was making great returns until GameStop turned my head with the promise of overnight riches, here's how I lost my way...
Ever since I started investing, I have abided by the rule of buying into solid companies which are renowned in their industry and have room for growth.
That strategy has helped me achieve a decent 2X% growth in my portfolio over the past year. It seemed as though I had a good cycle going - spending my weekends doing my due diligence in companies that fell into my radar and then buying into them at fair value.
I first noticed it when I casually browsed the WallStreetBets subreddit. It was averaging around $13 then and they had inked a partnership deal with Microsoft.
I thought nothing of it and that the brick and mortar business model it was operating in would be doomed for failure with the rise of e-commerce.
After all, my strategy was to invest in companies that have room for growth and I did not see the potential of GameStop.
Imagine my surprise when news of the potential short squeeze caught on and the stock price rocketed.
I wouldn't bore you with the details but my head was definitely turned. Taking a quick look at the market, I sensed an opportunity to earn extra cash - scalping the stock.
At first, the plan worked like a gem. Due to the high volatility of the stock price and the media coverage surrounding it, the general trend for GameStop stock price was upwards for the week of 25th January 2021.
Though it may suffer a short decline, the stock would always rebound upwards by the end of day. I was making a small fortune scalping it, buying low and selling high.
I calculated my profits at the end of the week and made a tidy sum of money which the other stock counters in my portfolio would take months to make.
Pretty easy money isn't it?
I set a deadline for myself to get out of the stock by the end of week as it started getting mainstream and the greed was evidently there in the streets.
People starting getting FOMO over not getting into the game and you start seeing newcomers opening brokerage accounts to get their hands on the stock.
I should have seen the signs coming...
As the popular saying goes: "When the shoeshine boy starts giving stock tips, it is time to get out."
Greed clearly consumed me, in retrospective, my game was up by then.
I made the mistake of not quitting while I was ahead and entered in again against the deadline I had set earlier.
This time, I was adamant that I would go out with a bang. Instead of buying my usual amount of shares to scalp, I bought in at 5 x what I normally bought. Since it is my last play, I'd ensure I made all the money I could before riding into the sunset.
Before long, the stock price started to plummet down. By the end of day on 1st February, I had lost nearly 20% of my holdings. On hindsight, I should have been more disciplined and not let my emotions rule my judgement.
Though the price was dipping, the online chatter was that this situation mirrored the Volkswagen short squeeze in 2008 (where the stock price hit a $1,000).
Chat groups were formed over telegram, with people encouraging one another to hold onto the stock and not be a sellout.
In the ensuing days, the stock price continue declining and I eventually exited at a loss of 70%, wiping out all the gains I made earlier the previous week.
Though this past week has caused me a small fortune, I count myself lucky that I got away with a slap on the wrist. The implications could have been larger if I was leveraged or had put my life savings in.
Looking at the news, you would see that people have thrown in a substantial figure into the stock. God bless them and I hope they cut their losses in time.
I learnt that if I wanted to day trade, I should have been more disciplined and set my stop-loss and take profit prices in place before entering the counter. This would have allowed me to exit the stock with minimal losses.
I also learnt that speculating in such volatile counters is a highly emotional affair. After all, it is much easier to Diamond Hands while the stock is going up. Try doing so while you are facing a 50-75% paper loss. That will toy greatly with your emotions and might even affect your sleep at night!
To conclude, I am disappointed with myself that I have ruined the good work and momentum I built up over the past years. This experience has taught me valuable lessons which I hope to take forward in my investing journey.
Hopefully. I will be reminded of these lessons when tempted by the allure of overnight riches in future.
10 more comments
10 Feb 2021
It is the saying that if you make mistakes that means you learn, Brother don't disappoint but learn from your mistakes and try not to do it again. Best of Luck for your future.