Investing is Not A Video Game

February 02, 2021

You don’t have to be interested in the stock market or investments to have seen the news about Gamestop stock (GME). The story went viral, and there are plenty of articles written and people speaking about the details of it in podcasts and news media outlets that don't need to be rehearsed here.

What I want to draw your attention to is that this story reminds us that volatility can be tough to stomach. It can be a wonderful friend or a brutal enemy depending on which side of the trade you are on. If you would have invested 10k at the beginning of this year and sold right at the most recent top, your $10,000 would have become around $184,000.

If so, congratulations! Seriously.

But the problem is no one knows for sure where the top—or the bottom for that matter—is. As of this writing, that original investment is now $49,000. Still darn good, but holding it and watching it plummet from the top would not have been easy. Would you have sold? Bought more? Held on for dear life?

Where it ends up is anyones guess, but as of this morning (which could change in an instant) it’s been cratering.

We can look at this another way too. You may have seen the news about GME last week and to avoid Fear Of Missing Out decided to put 10 grand in at the open January 27th (the day I published "The Stock Market Doesn't Make Sense", which would be worth roughly $6,000 at the moment I ran this chart.

Tough pill to swallow.

Who knows though, the charts above could be totally different by the end of this very trading day. And herein lies the rub: getting in and getting out is not easy and wrong decisions can be detrimental when it comes overall investment planning.

This is why understanding risk management and your own human behavior and emotion is critical to long-term investing. 

Gamestop may or may not exist in 20 years, but the likelihood of the broader stock market existing and benefiting its investors are far higher. There is never a guarantee of the future in the broader US stock market (or much else for that matter), but judging by the past, since 1929 there has not been any 20 year period where investing in it broadly has not made money.

Morgan Housel, in his book The Psychology of Money, writes,

“The historical odds of making money in U.S. markets are 50/50 over one-day periods, 68% in one-year periods, 88% in 10-year periods, and (so far) 100% in 20-year periods. Anything that keeps you in the game has a quantifiable advantage.”1

A key financial planning goal is not to perfectly guess one individual winner—though no doubt individual winners can play a big role in one’s portfolio—but to do all you can to make sure you stay in the stock market over the long haul in the kind of portfolio allocation that accords with your risk tolerance.

Investing prudently and consistently in the stock market is one thing. Turning the stock market into a video game—literally and metaphorically—is quite another.



1. Morgan Housel. The Psychology of Money. Harriman House. Kindle Edition. Location 1224.