There are plenty of economic and corporate fundamentals demanding investors’ attention in the week ahead — earnings, unemployment and economic stimulus legislation. And long-term investors will serve themselves well to stay focused on those data points.
It is understandable if investors’ attention has been grabbed by headlines of small investors banding together and pushing Wall Street hedge funds around. Shares of video game retailer GameStop quadrupled at one-point last week as retail investors used online forums to squeeze big money funds that had sold the stock short, expecting the price to drop. Similar strategies were in play with movie theater operator AMC, audio speaker maker Koss, Blackberry, and others.
These have made eye-popping moves — up and down — and the online chat generated origin makes it all the more of an irresistible story. The idea a loose-knit Internet group could stand up to established Wall Streeters usually is the stuff of screenplays not trading screens.
Speculation is an important part of a functioning market. The ever-changing appetite for risk is reflected in prices and price direction. These moonshot moves can test investors’ patience and shake up their confidence of conventional market wisdom.
Yet financial results, like the dozens due in the week ahead, count. Employment data, like the January figures released on Friday in the week ahead, matter.
Sure, there may be money to be made in these surge trades. And there’s money to be lost, too. Zero-cost trading commissions, liquidity, and leverage have lowered barriers, allowing investors of all sizes to get involved in the markets. Democratization of markets is a good thing.
When that participation veers away from reason, investors risk more than investment losses. It can harm the trust upon which a healthy market relies.
