GameStop: What to Know Before Jumping In
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What is driving the recent GameStop and AMC trading frenzy?
Here's your money briefing for Tuesday, February 2nd. I'm J.R. Whalen for The Wall Street Journal. GameStop shares took a wild swing lower yesterday, down about 30%. That might make it tempting for casual investors who've been watching the current trading frenzy to jump in with the hopes of scoring some quick cash. But before you tap buy, there are some good reasons to think twice and set down your phone.
I think the bottom line is don't give into your FOMO, some fear of missing out. And if you're a person who likes to gamble and you do gamble and you have a gambling budget, that could be where you're drawing the funds from. If the funds are for your essentials, that's probably not a good idea.
Our personal finance editor, Beret Lam, and her team have been studying the current trading craze and the potential impact on your money. She'll join us with some important information about the market you'll need to know before you consider buying and discuss the market forces that could prevent you from selling when you want to. That's after the break.
Depending on the day, shares of GameStock, AMC, and other stocks that have been part of the latest trading craze are just as likely to zoom higher as they are to fall. That could wreak havoc for investors putting their personal finances on the line in hopes of making some quick cash.
Why should individual investors pause before buying into meme stocks?
Beret Lam heads up the personal finance team at The Wall Street Journal. She's got some things that new investors need to know and watch out for before pulling the trigger and joining the frenzy. And she joins me now. Beret, thanks for being with us.
Thanks, Chair.
You know, the other day we spoke with personal finance reporter Julia Carpenter from your team about the pressure people might feel from online forums to get in and try to score some quick cash. But what kind of self-imposed discipline does this involve on the part of traders to protect their finances, even if they want to buy just one share?
So, yeah, this is a question we've been getting from a lot of people who may be feeling some FOMO, some fear of missing out when they're sitting on the sidelines with their stimulus money and watching these extraordinary gains in these hot stocks, GameStop, AMC, BlackBerry. But as you can see, the day to day changes can be really dramatic in either direction. You know, these stocks can go way up or way down. And so that's what I think that people who are sort of fighting the urge to jump in should really think a little more about is that right now jumping into GameStop because of peer pressure or because you're seeing this fun party online that you want to be part of. This is really not going to produce returns for you.
It's a gamble and you should be prepared to lose that investment. And I'm seeing that there's people who want to buy in solidarity of these Reddit traders.
How does momentum and technical trading differ from company fundamentals?
They call themselves the one-share club or the two-share club. They're just buying not to move the market, but just to show solidarity with these traders. And so if you're doing that and not treating it as an investment... then that's your call in terms of if you want to make that bet, knowing that you can lose that one share or two shares value entirely. So for example, GameStop ended Monday's trading session at 225 a share. So if you're going to be part of this one share club, putting 225 into GameStop, then you should Be prepared to lose that 225. And so if you're okay with that, then that's something that's where you have to start from if you're considering being part of the one-share club or two-share club.
GameStop is a very... specific case right now. And you know, that's part of the reason so many people want in. But its rise is not based on business fundamentals. It's rooted in technical factors and momentum. And that's what makes this buy so different from anything else you can buy on the market right now.
But doesn't it also require some homework about the market itself? You know, the market is a game of ups and downs and people need to know that this can't go on forever.
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Chapters
4 chapters
1
What is driving the recent GameStop and AMC trading frenzy?
0:05–1:26
2
Why should individual investors pause before buying into meme stocks?
1:26–2:56
3
How does momentum and technical trading differ from company fundamentals?
2:56–5:38
4
Can a coordinated 'sell at $1,000' plan actually work for Reddit traders?
5:38–11:48
Speakers
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