MONEY MATTERS: Beware of investing in hot stocks

Updated: Feb. 9, 2021 at 4:23 PM EST
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COLUMBIA, S.C. (WIS) - Recently in the news, you may have heard a lot of talk about the stock market and the company GameStop. Josh Bradley of Capital City Financial Partners briefly explains what that was all about.

“A group of investors got together online, they found a stock that was kind of a small traded stock but had a very high short sell interest on it, and they basically just grouped together, bought the stock which drove up the price,” Bradley said.

Bradley went on to say, “... basically it was squeezing out these short-sellers who had sold the stock previously, however, didn’t actually own it because they thought the price was going to go down. As the price started to rise, they were forced to buy that stock up at a higher price which drove the price up. The guys that initially did this made a bunch of money and more people kind of piled on as this went on ... however, other than those initial investors, almost everybody has lost a substantial amount of money investing in this over the past few weeks.”

So what should we learn from this situation?

Bradley says big investors will learn not to short sale as much and to have protections. For individual investors, Bradley likens this situation back to the 2000 tech bubble and the 2008 housing market crash.

“This is where people who didn’t have a complete understanding of investments piled on to some hot investment and a lot of times they took on debt to do it and when it all came crashing down, it was really, really ugly. We’ll see a lot of people losing a substantial amount of money jumping on to these hot ticket investments,” Bradley said.

To speak with Josh Bradley or any advisor at Capital City Financial Partners, visit this link.

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