I’m not going to be one of those finance people who wag their finger at all the young people YOLO trading in meme stocks.
I think its great young people are interested in the markets.
Are some of them going to lose money?
Yes, but people have always lost money in the stock market.
Are some of them going to learn bad habits?
Yes, but older, more experienced investors have bad habits as well.
I don’t mind certain investors speculating on stocks like this if they know what they’re doing or have the right mindset. If you’re young, have few financial responsibilities and understand this game, there’s no reason you can’t take some big risks in the stock market.
But you have to go into this stuff with your eyes wide open.
With that in mind, here are 10 signs you are NOT a YOLO trader and are better off sitting this one out:
1. It’s money you can’t afford to lose. This is an easy one. It’s nice to think about stock picks that go to the moon but there are sure to be unsophisticated investors who get into this that are left holding the bag and lose a lot of money they have no business putting at risk.
2. You have no idea what you’re investing in or why. The Wallstreetbets people know more about this than the people who are now jumping on the bandwagon. Their trade was borderline brilliant and many of them have been in this for months.
The people jumping on the bandwagon at this point just see something going up in price and have no idea why this was an investment opportunity in the first place.
3. You’re buying purely based on emotion. There’s nothing wrong with being upset or outraged about the system but that’s not a good reason to invest in something.
4. You have no idea what tendies are. If I have to explain this one, you shouldn’t be following the Wallstreetbets crew into their stock picks.
5. You have a family or other financial responsibilities that are more important than putting on a YOLO trade. I’m all for people doing what they want with their money. But before putting on a YOLO trade ask yourself the following:
- Do I have an emergency fund?
- Am I contributing to a 529 plan for my kids?
- Am I contributing to my 401k or IRA?
Trading stocks is fine but you should have the rest of your financial house in order first.
6. You’re buying a stock because you saw someone talking about it on social media. Now that this story has become a part of popular culture, you’re seeing people talk about stocks that never talk about stocks. Be careful when listening to people who are more worried about social media clout than actually providing useful financial guidance.
7. You’re buying a stock because one of your friends owns it. This one might be even more dangerous than a social media clout recommendation because the FOMO feels even more real when it’s someone you know.
We’ve all been getting text messages about GameStop this week. Just remember, there has never been an investment book titled I Got Rich Investing in Stock Recommendations From My Friend (Who Has No Idea What They Are Doing).
8. You have no idea when you will sell it. Buying a stock that’s going up is easy. The hardest part about investing in individual stocks is knowing when to sell. This is even more true with a stock you are day trading.
9. You’re revenge trading. If only I would have bought that stock when it was $5 a share I would be a millionaire is not a great reason to buy it now. Momentum is a legitimate investment strategy but only if you realize it doesn’t last forever.
10. You don’t understand the risk involved in the stock market. No one can predict what is going to happen in the stock market in the short-term, especially when it comes to highly volatile individual names. GameStop could go to $1,000 a share. Maybe AMC rides the wave to $50 a share.
Stranger things have happened.
But you have to understand these moves can work in both directions.
The stock market won’t hand you gains just because you think you deserve them.