May 2024: GameStop (GME) was in the news headlines again, and its stock price was highly volatile. These are the lessons to be learned from such wild movements, primarily from social media hype (meme stocks) and speculative trading.
GameStop’s financial situation in Q1 2024 was far from strong. The company reported net sales significantly below Wall Street expectations, leading to a revenue miss highlighting underlying business challenges (Shacknews). Despite these poor fundamentals, the stock soared by over 130% in mid-May due to speculative trading driven by social media influencer Roaring Kitty (Keith Gill) (InvestorPlace).
Lesson 1: Basics Matter
It’s really important to invest based on the company’s financial health and market position. GameStop did not rise on these financial performance metrics. From a trading perspective, the real value is solid business metrics, not hype.
Most of the price appreciation for GameStop came from emotional and speculative trading, which scared many investors into hoping for capital gains by the fear of missing out on possible short squeezes.
Lesson 2: Say No to Emotional Trading
Massive losses would be expected if trading were based on emotions rather than analysis. Traders should keep calm and decide with proper analysis and strategy, not market sentiment, which is very transient.
Similar to the case of GameStop, these stock movements have more of the character of a speculative bubble in which market participants drove the prices rather than this intrinsic value itself. Bubbles, of course, can always burst—meaning that those who purchased at elevated prices lost huge sums of money.
Lesson 3: Identify Speculative Bubbles
It’s very important to realize and become conscious of the signals of a speculative bubble whenever it happens. You must exercise caution with stocks that experience price escalations over a short period and whose business performance is not proportional. True learning in the stock market involves identifying and avoiding these bubbles.
The GameStop saga epitomized the thin line between informed trading and gambling. In actuality, many traders who participated in this rally in May 2024 were gambling against the stock price without a strategy or a cool head about their risks.
Conclusion: Trading is Not Gambling
Educated trading is research, strategy, and risk management. NeuroStreet Trading Academy focuses on these factors when helping a trader make informed decisions. Unlike gambling, successful trading requires discipline and thorough expertise in market dynamics.
The GameStop events surrounding the May 2024 rally remind us how important it is to stay true to sound trading principles. NeuroStreet Trading Academy teaches the importance of getting an education, applying discipline, and focusing on the fundamentals. That way, one can learn from such events and not subsequently fall victim to the pitfalls of emotional speculative trading but make gains from the markets in the long run. Check out our testimonials at NeuroStreet Trading Academy to see how we have successfully taught traders to be strategic and not emotional.
Editor’s note: I admit to getting in on the GME surge. However, I did so with money that I knew I could lose. The couple of days that I participated in the GME craze were a reminder of the stress and gut-wrenching anxiety such actions cause. I was lucky to come out on the winning end, but I know many people didn’t and might now be holding shares that cost double or triple the current value. This is not trading but gambling; as long as you know that going in, the rest is on you. I prefer the educated approach, using fundamentals, community, and cashing in on constant gains instead of sweating through meme stock frenzies.
