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GameStop’s (GME) more than 400% rally this week is the rare Wall Street circus that has spilled into the mainstream. There are lots of think pieces on the resentment that’s been brewing since the financial crisis bubbling into Reddit chat rooms and the resulting short squeezes. Some hedge-fund titans have wrung their hands about retail investors on the attack.
There’s also the notion that watching it all unfold, and even participating, is just pretty damn entertaining.
“There’s nothing wrong with having fun in the market,” James Angel, associate professor of finance at Georgetown University’s McDonough School of Business, told Yahoo Finance Live.
But it helps to follow some ground rules (maybe don’t invest your life’s savings into GameStop, for example), and governing principles, and to be self-aware.
“Most people aren’t really skilled at day trading, just like most people are not good at playing soccer. Only a few thousand people on the planet are good enough at playing soccer to do it professionally. And the same thing with day trading,” said Angel.
He counts himself among the non-skilled. He went long GameStop early in the week “for educational purposes,” then liquidated his position by Wednesday and took a small short instead.
To be sure, Angel also said regulators could improve upon market structure to make sure stock prices reflect economic fundamentals.
It’s too early to tell what the full financial fallout from GameStop’s meteoric rise will be. (That’s not to mention similar trading action in stocks from theater-chain owner AMC to the ashes of bankrupt video store Blockbuster). We know it sparked a rescue of Melvin Capital, which had been short GameStop shares, and that trading platform Robinhood had to raise emergency capital because of cash demands tied to the frenzy. One large retail ETF lost 80% of its assets.
The damage — or rewards — for retail investors remain to be seen, and may never be discovered, since individuals’ personal portfolios aren’t usually public fodder. There is certainly no shortage of pundits who say it will end badly.
While it may be entertaining to dabble in stocks like GameStop for fun, said Angel, in general investing should not be for thrill seekers.
“If you want excitement, you’re going to pay for it. Studies show the most volatile stocks on average give you lower returns than the boring ones. When you do investing well, it’s like watching paint dry, or it’s like farming. You plant a little money today, you tend a farm carefully, and if everything goes well, later on, you get a nice, bountiful harvest.”
In other words, maybe don’t bet the farm on GameStop.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET.