If you’re anything like me, you probably felt like a complete fool earlier this year when Gamestop shares were turning average-Joes into overnight millionaires. It was similar to when bitcoin-related talk started taking the internet by storm, and cryptocurrency became the most hyped phrase on everyone’s tongue.
Amidst the flurry of memes, tweets and influx of news, it can feel like you’ve missed the boat on an important historical moment when these things pop up. While trends like Dogecoin might seem like another Elon edge-lord moment, they do present an opportunity for us to educate ourselves on all things investing.
We live in a world in which every bit of info we could’ve ever dreamed of is at our fingertips, so there’s no time like the present to turn your knowledge of investing around and avoid the feeling of sopping regret when the next big thing hits the market.
To make sense of it all, we had a chat with Josh Gilbert, Market Analyst at eToro, about improving stock market literacy to recognise when a share or trend is about to skyrocket.
What are the signs that indicate a stock is popping off?
According to Josh, comparing the performance of a particular stock to general economic and overall market trends is imperative in gaining insight into whether it’ll succeed in the long run or not. He noted three fundamentals to check before investing in a stock because buying a stock simply because it’s going up at the time isn’t a good enough reason to buy.
- Does it have a strong balance sheet?
- Is it profitable?
- Are its revenues growing?
Right now, ‘cyclical stocks’ are gaining traction as the economy is growing with the fastest growth spurt we’ve seen since 1983.
“These stocks are becoming firm favourites for investors. Automakers, banks and retail stocks benefit from this rotation. Many investors are looking to diversify their portfolios outside of tech stocks,” said Josh.
Overall, Josh noted that it’s important to stay as up to date on overall sector trends as a way to build your investment portfolio, rather than just hopping on individual trending stocks. It’ll give you a bigger-picture idea of where to put your money and will give you the ability to make informed economic decisions long-term.
“Often trending stocks can be highlighted due to a price spike, whereas trending sectors are a great way to build your portfolio. Sector changes and trends are key to ensure your portfolio stays up to date,” said Josh.
How can budding investors best stay up to date on trends?
So, we’re now ~well aware~ that staying informed about market trends is integral – but where exactly do we gather all that sweet knowledge from?
“Reddit has obviously been the name in focus recently. It has got a lot of new investors interested in the market, which is great. It’s always key to cross-reference anything you see on a social site with what the experts are saying,” noted Josh. Gamestop’s boom in January was the bi-product of a hyper-niche Reddit meme, just in case you were underestimating the platform’s power.
He also recommends joining conversations on social platforms as a way to keep on top of trends, and in particular, get an idea of what retail investors are looking at.
“Of course, news outlets are a great way to stay up to date. I would recommend turning on news alerts to keep updated. Podcasts are a great way to stay in the know, and they can provide great insights into the market if you’re not a fan of reading much. eToro also provides a social network to interact with other users who are investing. You can also view sections such as ‘trending stocks’,” recommends Josh.
What mistakes do first-time investors generally make when jumping on stock market trends?
Overall, the biggest mistake you can make is not doing your research before diving in – knowing exactly what you’re putting your money into will give you an understanding of the risks involved. Much like everything in life, Josh has noticed that FOMO is a huge player in investor’s mistakes.
“When there is lots of noise around an asset, maybe friends are investing and doing well,” explained Josh.
“Often, you will see someone invest on the back of that and not do their research. This means they don’t know what they are investing in. They just did it because they don’t want to miss out. Investors should adopt a long-term investment mindset and only invest what they can afford to lose if markets don’t perform as you had anticipated.”
