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CNBC just posted that The Market Has Gone Wild: Penny stocks are up nearly 80% on average in the last week. They found that, recently, Stocks trading below $1 per share have had an average gain of nearly 80% in the past week…and much of that movement was caused by retail investors looking to buy beat up companies for a quick profit.
I’ll be honest…this type of investing is beginning to remind me of the CC Bubble in late 2017, except this time…gambling is disguised and justified under the veil of “investing,” and even though many of these companies are NOT worthless, and have real value…there’s just the common mindset that you should buy into the hype train and risk money, because someone else will most likely be willing to pay even more, later.
Now, I want to make the distinction that investing in a hard hit company, with solid fundamentals, long term, is NOT what I’m talking about here…but, instead, this gamblers mentality that becomes a game of musical chairs, knowing that a company is about to be worthless, but hoping the price will go up high enough to make a profit, and leave someone else holding the bag.
Unfortunately, I do think that this is going to burn a lot of people who confuse investing with excessive risk…and, if you find yourself in this position, recognize the risks involved, and preferably ONLY play with money that you’re okay with losing.
That’s why the age old: invest consistently, buy and hold long term, still applies here. Honestly, the entire market is unpredictable and we have NO Idea what’s going to happen in the short term…that’s why it’s better to buy in, and keep buying in on a consistent basis. If prices go down, you buy lower - if they go up, you’ve made a profit, and can continue buying higher.
If you invest in a broad index fund, much of this doesn’t apply to you and you can grab your popcorn and watch…but what’s going on with some of these individual stocks, like JC Penny, Herz, and even Nikola stock…is just gambling.
And sure, there’s the possibility of making a lot of money - but, you could also LOSE a lot of money. So, just remember…even though it might be TEMPTING to throw money in some of these companies for fun, or because you see the price just going up…realize that it’s insanely risky, and NONE of this is sustainable.
If you have any significant amount of money…just invest normally, max out your retirement accounts with an index fund, and call it a day. If you have money left over you don’t mind potentially risking…go for it…but, don’t confuse that with investing.
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