THINKING OF INVESTING IN GAMESTOP? HERE'S WHAT YOU NEED TO KNOW FIRST ABC Everyday / By Patrick Wright * Topic:Personal Investing Thu 28 Jan 2021Thursday 28 January 2021Thu 28 Jan 2021

at 10:57pm It started with memes on Reddit. Now, it's a full-blown stock market frenzy that's captured the world's attention. That's right, we're talking about

GameStop. And amidst the jokes — and the fascinating battle between small-time investors and Wall Street — some people have made an awful lot of money. While GameStop may seem like a ticket

to riches, history has shown that highly speculative investments often end in disappointment. With that in mind, we asked three investing experts to provide some tips and advice for people

educator based in Melbourne. "GameStop is more of a speculation, because it's based on supply and demand rather than fundamentals," he says. One reason the shares have

skyrocketed is due to a situation called a "short squeeze". The frenzied buying is causing short sellers (people betting against the stock) to capitulate – and that's pushing

prices even higher. It's not clear how long this situation can continue though, especially considering some short sellers have now exited their GameStop positions. It just one of the 

many risks to be aware of, Mr Raszkiewicz says. "If for any reason you are inclined to invest in something like this, you should be considering your own risk profile, and never putting

more money than you can afford to lose," Mr Raszkiewicz says. > "Because underneath the surface, GameStop is actually not very > strong. It's being propped up more by 

investor sentiment." Another risk is that your broker simply won't let you trade the stock. At least two US brokers have limited trading in GameStop, citing "recent

volatility". If the wild swings continue, there could be further limits. HIGH FLYERS OFTEN COME BACK TO EARTH In the stock market, speculative manias are fairly common events. There was

rampant speculation in the lead-up to the GFC, and during the tech bubble of 1999-2000, Microsoft was valued at more than $US500 billion. It wasn't until 2017 that the company reached

those heights again.  Another hot stock during the 1990s bubble was Iomega. After skyrocketing more than 2,000 per cent in a year, shares in the "zip drive" manufacturer plummeted

nearly 70 per cent by May 1997. These kinds of stories serve as reminders that the good times don't always last, says Richard Gough, a financial adviser based in Melbourne.

"GameStop has gone up so much, and it's been a short, sharp rise. It can be exactly the same thing on the way down," he says. DON'T ASSUME YOU CAN TIME THE MARKET When

everyone's making lots of money, it's easy to get caught up in the madness. It happens to the best of us – even Isaac Newton, who was famously caught up in the South Sea Bubble in

the 18th century. As Newton found out, it's not always easy to know when to sell. And prices can change so quickly that you can be left in the dust. "If everyone's selling at

the same time, it can push the price down," says Kyle Frost, an independent financial adviser. "The velocity on the way down can be the same as on the way up. It could halve in one

day, or even fall further. When it's time to sell, it's often too late." During the frenetic trading this week, GameStop shares often swung more than 50 per cent within a

single trading day. And while you might imagine you'll be able to get out at the "top", in practice it's almost impossible. "Even people who have been in the markets

for 30, 40, 50 years can't time the market. It's impossible to time whether a stock will rise or fall," Mr Gough says. LEAVE OPTIONS TO THE EXPERTS Some investors in GameStop

have been trying to make even more money by buying options rather than the company's stock. Options are financial derivatives, meaning they derive their value from the underlying

security or stock. These options can lead to large payoffs, but they can also cause massive losses. It's why if you don't know what you're doing, they're best left alone,

Mr Raszkiewicz says. "You should leave those tools to the professionals. Yes, they can work, but they are definitely not beginner friendly," he says. "You should definitely

build up your experience before you try to plug your portfolio with any tools like that." BE CAREFUL ACTING ON INFORMATION YOU READ ONLINE With any investment decision, it's

important to do your own research rather than relying on tips or information from others. It's obvious, but it's not a smart idea to buy shares simply because you saw someone on

Reddit say: "GME is going to $5K" with lots of rocket emojis. "Be very careful taking information from social media," Mr Gough says. "The first point is to

understand what you own, and why you own it." YOU MAY LOSE MONEY IF YOU BET ON GAMESTOP While some people make a lot of money speculating in the stock market, these stories often have

unhappy endings. "For every GameStop that has gone up 20 times, there's another stock that was quartered in value or dropped a lot. But you don't hear those stories as

often," Mr Frost says. > "No-one knows when the music stops, but you don't want to be holding > the bag when it does." _This article contains general information

only. You should consider obtaining independent professional advice in relation to your particular circumstances._ SIGN UP TO THE ABC LIFESTYLE NEWSLETTER Get a mid-week boost and receive

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