Over the past week, there’s been a lot in the news and social media about stock speculation. GameStop in particular saw their stock prices wildly fluctuate. Wall Street hedge funds, expecting the GameStop stock to fall, have been shorting the stock.
If the stock fell, they would make money. And the stock had been dropping as expected. However, a big monkey wrench was thrown into the equation. Members of Wall Street Bets, an online group on Reddit, found a way to beat the market by buying up a bunch of the declining GameStop stock.
The sudden wave caused the GameStop stock to rise by 1,700% since the start of January. A lot of people got in on the action—experts and novices alike. Some made a lot of money and some lost. Things got so crazy that Robinhood, a commission free investing platform, restricted users ability to purchase that stock and others (whole other topic).
I really don’t know much about this space so I sat out the buying and selling frenzy. Quite simply, it’s not my area of expertise so I didn’t participate.
My approach to investing has caused me to miss out on opportunities to make money. It has also saved me money on opportunities that have gone sideways. But I haven’t had to suffer through sleepless nights wondering what’s going to happen with my money that I speculated in.
It may be boring, but it’s an approach that has worked for me, and I believe will continue to work for me.
It’s easy to get caught up in the Fear of Missing Out, or FOMO. Watching others around you make fast money while you’re not, can make for an uneasy feeling. The allure of “get rich quick” is strong for a lot of people. When it comes to investing though, I make a conscious effort to not allow FOMO to dictate any of my decisions.
Warren Buffett says, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” I expand his quote to not only mean the stock market, but also the real estate market, since I invest mostly in real estate.
One of the biggest components of my investment criteria is I only buy index funds or real estate that I’m happy to hold for an extended period, much like the quote Buffett suggests. If the fundamentals are solid and I’m happy to hold it for several years, I consider it an investment. If it’s something I’d want to sell in a few months, or days, I consider it speculation.
Speculation to me is gambling, and that doesn’t fit my definition of an investment. I know that there will be many other opportunities to speculate in the months and years to come. Some will be well known like with GameStop, and others will be under the radar. Either way, they will be there.
Speculation comes in all different shapes and sizes and can look very appealing. They can even look like sure bets—until they’re not. FOMO will always be there, but I’m not going to let that influence my long term investing decisions.
