GameStop, AMC, or your different inventory picks could have gone up. Why you would possibly need to discharge them
Gabriela Bhaskar | Bloomberg | Getty Images
If you’ve held shares in GameStop, AMC Entertainment, or other so-called “meme” stocks that have shot into the stratosphere lately, it may be time to take advantage of the gains and move on.
While it’s uncertain where these stocks will go from here in the short term, experts say investors should be prepared for them to eventually fall back to earth. On Thursday, GameStop stock fell 56% late in the morning after closing at $ 347.51 on Wednesday. About a week ago, the price was $ 42 and by the beginning of 2021 it was $ 17.25.
“If you’ve been fortunate enough to be on your way to the top, an exit strategy is vital,” said certified financial planner Doug Boneparth, president of Bone Fide Wealth in New York.
“It’s not about what you did on paper, it’s what you actually keep in your account,” said Boneparth.
Retail investors, led by those on WallStreetBets Reddit chat room, have piled into stocks that hedge funds using a strategy called short selling are anticipating a decline. Basically, short selling means borrowing shares of a stock at a certain price, selling them, and then counting on the fact that they can buy at a lower price when it comes to repaying the stocks borrowed.
There are reasons professional investors may short certain stocks, which can include poor fundamentals and an outlook that generally does not suggest future growth. In these cases, regardless of how high the share price is due to demand, the underlying company’s financial data has not changed.
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In addition, it can be difficult to get out of a stock at the desired price if it is trending down.
“If everyone runs to the exit and you place a market order to sell, you get the price that the market will carry,” said Boneparth. “So if it falls quickly, the big question is when will your order be fulfilled.”
You can also place a stop loss order. This essentially means that if the stock falls below a certain price you set, you will sell. However, the price you get may not be the one that started the sale.
“When you’ve made money, that’s fantastic,” said Boneparth. “But at some point you have to move away from the circus that it is.”