Toronto Economist Tells You What Not To Do If The GameStop Craze Has You Dying To Invest
It seems like everyone is trying to make money on stocks right now, and getting good investment advice suddenly feels more important than ever.
But if you haven't invested your money before, is now a good time to buy stocks?
We asked Dr. Lisa Kramer, an expert in Behavioural Economics and a professor of finance at the University of Toronto, if now is the time to jump onto the trend, and, if so, what to keep in mind.
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Should I buy GameStop stock?
Kramer said it's impossible to predict whether one specific stock will go up or down, but she says it's important not to make the decision based on emotion.
"If you're feeling really excited or impulsive or any kind of sense of urgency, that's probably not a good moment to be making big financial decisions," she told Narcity in a phone interview.
"Take a deep breath" instead, Kramer said, and think about something a little bit safer, diversified and reliable.
If you do already have stocks in GameStop (or AMC or Blackberry), Kramer recommended that you cash out now and think about re-investing in a safer way.
"You can end up with a much more reliable flow of returns that will set you up nicely later in the future when you need those funds," she said.
Who should I talk to about investing?
Not the internet, said Kramer.
"If you are taking investment advice from TikTok videos and Reddit subforums, then I would say, now's not a good time to be jumping in," Kramer told Narcity.
Instead, she recommended using a robo-advisor — an automated system that analyzes the market and provides stock advice — or a financial advisor who operates on an hourly fee, rather than commission.
History tells us that some people who lost money in the recent stock excitement will never invest again, Kramer said, but others will "lick their wounds" and dive back in.
"But in a more measured way," she said.
Why is everyone getting so excited about investing right now?
Kramer says it's human nature to get excited about stories we hear from friends and acquaintances and want to jump in and share their success.
"[But] people tend only to tell us about the good outcomes, not the bad outcomes," Kramer warned.
"What I often tell first-time investors is if they're going to be investing in one particular stock — or a very small number of selected stocks — they should be prepared to lose everything that they're investing," she said.
Kramer also said that markets are prone to this "exuberance," and she doesn't see any reason why it won't happen again.
"This is why investors always have to be disciplined about sticking to their investment goals," she said. "Temptations like this are not uncommon; they will come along again."