Tuesday, February 2, 2021

Is The Market At Euphoria Stage Now?

The stock market is going through some crazy ride in the past few weeks. I'm seeing lots of new investors entering the market to make as much money as they can for fear of losing out. When I look through Facebook, I can see some friends who have not invested before coming into the markets and showing how much money they have made through stock trading. Just yesterday, the Straits Times reported a NUS undergraduate who accumulated $100,000 gains through the hot stock, GameStop, by investing only $20,000. These are signs that the market is going through a Euphoria stage.

With social media and the internet, information spreads very fast where people will follow news and get into the market without researching much into a company's fundamentals. This was seen from GameStop where the stock price rose from about $18 at the end of December 2020 to $347 at the peak in Jan 2021, all these >1000% returns in a short span of less than a month. However, as with any markets, what goes up will definitely come down when there is no fundamentals for it. There are already people who tried to invest in GameStop at $300+ and got burnt when the price now is only $100+. 

In market psychology, this is known as Euphoria which is the riskiest time to invest in. 

The stock market is often deceiving and any profits can be gone in an instant. Paper gains will forever be on paper only unless we sell the stock and lock in the gains. Seeing the excitement in the market growing stronger, I've began to take profits on the stocks I have and lock in the gains. I believe there will be some retracement soon but the general market sentiment will still be up as we recover from the COVID-19 pandemic. This may take awhile though so while we await the recovery, there will still be opportunities to invest in good stocks.

In the span of less than a year, we have seen some stocks recovering back to their pre-covid levels for the STI. Those who have invested at the low would have gained around 30% returns. While this investment returns is nothing as compared to the 1000% made in some Euphoria stocks, we are at least assured that what we are investing in has fundamental value for the long term. 

In times of market mania, we should remind ourselves that what matters is long term investment returns as opposed to fast money from short term gains. While it is tempting to join in the excitement and get fast money, we should limit our exposure for speculative investing to money which we can afford to lose. It is ok to join in the fun but remember this fun can burn anyone if they're not careful. 

This market mania will certainly end one day. When the time comes, we will be happy we did not throw in our life savings and lose it all to speculative investing. 

Enjoyed my articles? 

or follow me on my Facebook page and get notified about new posts.