Palantir? GameStop? wallstreetbets? What can you learn from these investment experiences currently in the market?

You would have surely heard of the GameStop saga in January where a bunch of retail investors from the wallstreetbets reddit forum took on the bigger investment players in the market, culminating in significant losses by the latter.

However, while the GameStop saga is now moving over to Congress , another form of interest has now taken over the wallstreetbets reddit forum – Palantir Technologies (Palantir).

This represents an evolving situation with the influence of wallstreetbets with reputable news networks now reporting the developments in this reddit forum.

Considering the changing investment landscape now, what are some of the things that you can learn from them in your investments? Read about them more below!

A Recap of What Happened to GameStop

The GameStop saga was covered previously here. In brief, it revolved around the battle of positions between the established investments industry and ordinary retail investors. Many hedge funds were shorting or betting that the price of GameStop will decline, while ordinary retail investors represented by the reddit forum of “wallstreetbets” took the opposite position in that prices will actually increase.

Established funds were inevitably burned when many retail investors kept buying GameStop stocks, driving prices up. Prices increased from a modest $20 to as high as $347 on 27 Jan 2021. Many funds who shorted GameStop made estimated losses of $19bn, causing some of them to abandon their positions.

This story has been compared to a story of David vs Goliath, as many retail investors who betted against established funds felt that the current system was geared towards protecting the big players on Wall Street and not Main Street people like them. In some ways, that was true as during the short squeeze, Robinhood actually halted trading of GameStop stocks to prevent the further buying of GameStop stocks. This was interpreted as helping the established funds on Wall Street to prevent the further rise of GameStop stock.

The repercussion from that decision was still felt until today as RobinHood is now facing 90 lawsuits on its decision to halt trading.

What Is Happening Now to Palantir?

Palantir is now the next-in-line stock favoured by retail investors from the wallstreetbets forum on Reddit. Getting its name from the popular Lord of the Rings Franchise, Palantir is now the most talked stock on the wallstreetbets forum, exceeding even GameStop. The only difference now is that there isn’t a big short position on the stock.

After a disappointing fourth quarter 2020 result, most investors have sold the stock but that has only served to attract the attention of the retail investors on wallstreetbets forum. Peter Thiel, one of the founders of Palantir, was once part of the “PayPal Mafia” which also consisted of Elon Musk and other reputable figures such as :

  • Max Levchin (CEO of Affirm)
  • David O. Sacks (Co-Founder of Craft Ventures)
  • Roelof Botha (Partner at Sequoia Capital)
  • Steve Chen (Co-Founder of Youtube)
  • Reid Hoffman (Co-Founder of LinkedIn)
  • Ken Howery (Co-Founder of Founders Fund)
  • Chad Hurley (Co-Founder of Youtube)
  • Eric M. Jackson (Co-Founder of CapLinked)
  • Jawed Karim (Co-Founder of Youtube)
  • Jared Kopf (Founder of AdRoll)
  • Joe Lonsdale (Co-Founder of Palantir)
  • Dave McClure (Founding partner of 500 Startups)
  • Luke Nosek (Managing Partner of Gigafund)
  • Keith Rabois (Partner of Founders Fund)
  • Premal Shah (Co-Founder of Kiva)
  • Russell Simmons (Co-Founder of Yelp)
  • Jeremy Stoppelman (Co-Founder of Yelp)
  • Yishan Wong (Former CEO of Reddit)

The interest on Palantir now has sparked further discussions on the role of retail investors and social media in influencing the current investment climate. There are certainly new things that you should learn from the experience of Palantir and GameStop in your investment decisions.

#1: Investments May Ignore Fundamentals for Prolonged Periods

This is perhaps one of the most important lessons that you should learn when you are doing investments. For better or worse, perceptions and emotions of investors in the market plays an increasingly bigger role as more and more people are getting into the market.

While a solid understanding and research is essential in your decision to invest in a company, market sentiments ultimately determine where the price is at. You can be fully confident in your analysis but if the market thinks otherwise, you won’t get far. Remember, as much as you want rationality to prevail in the market, humans inherently are imperfect and they are the ones trading and investing in the market.

The big lesson here is that do your research, but don’t go against the market if you are a retail investor. Don’t let your pride and ego cloud your decision making. Many of you thought that the research done by the established funds and research institutions will determine how prices behave, but the lessons from GameStop showed how you can be burned if you solely listen to the experts in the field.

If anything, the GameStop saga reveals how uneven and unequal the investments market are for many of you.

#2: The Uneven Playing Field…

Many of you are actually retail investors in the market, meaning you only have limited amount of money and are not the big boy funds in the market. Most of the time, you can’t influence how the prices will behave and most of the significant movements in the stock market are impacted by the decisions and words of the bigger players.

Essentially, this is already an uneven playing field for most of you. The bigger players (institutional investors, unit trust funds, hedge funds, banks, etc) have more capital, research expertise and clout to influence the movement in prices of investments.

The contrasting positions taken up by retail investors in wallstreetbets forum and the established funds reveals a growing deep-seated distrust of supposedly investment experts. The halting of trading by RobinHood only served to bolster the narratives that companies and governments are on the side of big funds and not the ordinary people on the street.

These deep-seated distrust comes mainly from the 2008 Financial Crisis, where many governments around the world bailed out these financial institutions who were the very ones who plunged the world into a financial crisis. Many ordinary people lost their jobs while instead these institutions and companies were saved.

Furthermore, many of the insider trading cases are mainly from the established funds, where they manipulated the market for their own gains. In the stock market, one person’s gain is another person’s loss, where the person incurring the loss is you.

You need to be aware about the disadvantages that you are under as a retail investor as most of the times, you have no control over how your investments will turn out. If you do not have the time or knowledge to DIY your own investments, put your money in a passive investment portfolio. Don’t compete with the bigger players if you are not skilled or knowledgeable enough to do it.

Remember, don’t let your pride and ego be in the way. Pick your battles wisely.

#3: Do Not Get Burnt Riding the FOMO Rocket

FOMO – “Fear of Missing Out”. While the experience of GameStop signified a good David vs Goliath story, don’t let it get to your head that it will continue forever.

Even GameStop crashed from its peak of $347 to $194 the next day. Investors who bought at around the peak, incurred heavy losses. This could be you if you keep riding the FOMO train, and do not exit in time.

If anything, this teaches you to be more disciplined in making your investing decisions. You should be avoiding these kind of stocks, as they are extremely risky and volatile, and akin to gambling in the casino.

Remember, your objective is to make additional profits from investments, not gambling in the casino. Many times, you are too caught up by the “potential profit” you can make from an investment or how other people are investing in them too, without considering the risk that you will be taking for it. The iron clad rule of higher returns need higher risk-taking always hold true. The market could be brutal if you are caught on the wrong side of it.

You can ride the FOMO train, but you need to be aware that you are taking a higher risk and essentially gambling. You reap your own profits but also take responsibility for your losses.

#4: The Rise of Social Investing

The past episode of GameStop and now Palantir serve to teach you that there is a new game in town. This is perhaps the first time that retail investors have had some influence on prices of investments, and social media has served to tilt the power balance to retail investors like you.

While bigger more established players in the market will still dominate, social media has served to call out some of the unsavory practices by big funds and the double standards maintained by governments. These experiences did lead to an erosion of confidence in experts (which is bad), but actually decentralises the investment markets to retail investors’ benefits.

It shows that bigger players in the market are less likely to get away from dodgy and shady practices of manipulating the market to their own advantage. There are now avenues where retail investors can get together and make better investing decisions, and potentially erode the dominance of bigger players in the market.

Conclusion

The experience of GameStop and Palantir marks a watershed moment for retail investors like you in the market. There are some things that you need to learn from these experiences about how the stock markets and investments in general work. Firstly, you need to learn that investments are not just about fundamentals but also about human perception and emotions. Secondly, there is an uneven playing field between you as a retail investor and the bigger players in the market (institutional investor). Thirdly, be careful not to burn yourself following a FOMO train and lastly, social media is now a potent avenue and channel that can impact prices in the stock market.

 

What else have you learn from GameStop and Palantir about investments? Let us know in the comments below!

 

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