Finance Monthly - November 2021 Edition

The key to success is to understand the motivations behind emotional investing and to avoid both euphoric and depressive investment traps that can lead to bad decisions. The investor psyche can overpower rational thinking during times of stress, whether the stress is caused by hype or panic. To capitalise on market euphoria or frightening events, it is critical to take a rational, realistic, and strategic approach to investing. What is the “meme stocks” movement? “Meme stocks” are stocks of companies that have recently seen a sudden surge in trading activity, usually supported by online social media platforms such as Reddit and Twitter. The hype surrounding a particular stock encourages retail traders to invest, knowing that its share price will likely rise and do so quickly. In addition, the “meme stocks” exchange community often favours stocks with high, short- term gains. By forcing everyone who sold the stock to cover their short position, this leads to further stock growth overall. The term “meme stock” originated on the Reddit online discussion forum, where a sub-Reddit known as WallStreetBets became heavily popular. Towards the end of January, the users of WallStreetBets criticised large financial institutions and hedge funds for constantly ‘shorting’ the shares of distressed companies such as GameStop and AMC Entertainment. This led to retail traders buying large quantities of shares in these companies, taking advantage of the ‘buy and hold’ approach. Following this surge, news of the short squeeze spread across various social media platforms, attracting a lot of attention from investors across the globe, even to the point where the phenomenon came to the attention of the SEC. This resulted in certain hedge funds and brokers who worked with them making some pretty hefty losses. Should investors look to participate in this growing trend? Or is it important that they do not get sucked in by impulse buys? It is important to remember that “meme stocks” are nothing more than speculation. Essentially, it is not worth allocating large sums to these trades, given the stock’s volatile behaviour or unsubstantiated valuations backed only by information noise. In the long term, the company fundamentals will matter a lot, and after a short squeeze rally, the prices can easily go down as fast as they went up, so it is worth acting with caution and being aware of all the risks. Has the “meme stocks” movement impacted the global stock market as a whole? The movement of “meme stocks” has more to do with factors brought about by the pandemic. Historically low-interest rates and incentives, as well as high levels of liquidity in the markets, combined with increased leisure time and self-isolation, provoked many people to enter the stock market for the first time. In addition, the increasing availability of zero commission accounts and trading apps for millennials contributed immensely to the growing trend. Over one million new online brokerage accounts were opened in Q1 2020 alone, with equity Inve s tmen t 58 Finance Monthly.