If trading in stocks were easy, we’d all be making a handsome profit. But the reality is that with so many investment choices (there’s even meme stocks today!) and different advice coming from all directions, most new investors get led easily down the wrong path and do not, therefore, maximize their chances of success.
The truth is, there are always opportunities for making a profit from trading in company shares. But if you have been attracted to the stock markets after hearing of the latest meme stock sensation, read on to discover why you should temper your enthusiasm with a little bit of balance. Safe trades in established, stable stocks offer more long-term growth from price rises and/or dividends.
It’s always ideal to start investing at a young age, but be sure you choose wisely.
Related: Top 5 Tips for Investing in Stocks
Meme stocks are those that have seen a surge in popularity – and price – thanks to viral activity on social media. As we know, social media reaches far and wide fast, spreading news and influencing behavior more than anything else in modern times.
Stock trading is no exception, and perhaps the best-known example of this was early in 2021, when the share price of US video gaming and consumer electronics retailer GameStop soared. The chain was perceived to be struggling with the shares down at $19 each until an investment forum on the popular social platform Reddit took up the cause, encouraging followers to buy just as big finance houses were ditching the share, driving the price down further.
The online activity quickly took hold, and incredibly, by the end of January, the GameStop price had risen to $483. After a week, the price crashed down to $40, which was still more than double the low point, before rallying again.
Other meme stocks of recent times include:
- AMC Entertainment,
- Bed Bath & Beyond, and
Examples of Safe Trades
Perhaps the opposite of a meme stock, where you are effectively gambling on a stock rising based on social media persuasion, is a safe trade.
Safe trades refer to stocks that statistically offer stable prices, perhaps growing steadily over time, and that probably offer dividends to bring an income or to reinvest in more shares. Most people will invest in safe trades fairly comfortable in the knowledge that the price will not be volatile and take a sudden dip.
Good examples of safe trades include companies like:
- The Walt Disney Company,
- Berkshire Hathaway,
- Procter & Gamble,
- Apple, and
To see an illustration, look at the two graphs below.
The first is the share price of GameStop over the last 12 months. Compare it to the more stable price of Procter & Gamble over the same period.
Use Regulated Brokers like eToro
Whatever your trading style, whether it is more risky and embracing meme stocks or more conservative with safe stocks, be sure to use a well-known, regulated broker. Not only will this keep your money safe, but good brokers like eToro offer a vast range of markets so that you can always find the trade you want. You can read more in this eToro review.
Decent brokers have many advantages, including fast deposits and withdrawals, online educational tools, and more.
Related: Investing the Warren Buffett Way
Once you have joined an online trading platform, you must formulate your own investment strategy.
While it is tempting to go only for meme stocks because it looks exciting and easy to follow the crowd, this strategy is actually dangerous.
Imagine you had decided to buy GameStop in our earlier example at the wrong time, when the price had reached $483, only to see it fall back to $40 within days?
Of course, if you time it right, you could make a significant profit, so long as you spot the right time to exit the trade.
A better strategy is to find the right balance between the safe trades and the meme stocks
The safe trades will bring much-needed stability to your portfolio, while your meme stock “gambles” will only account for a smaller percentage of your total investments. If a meme stock trade goes badly wrong, your fall is cushioned by the safe stocks that you own.
How you split up the portion of safe vs. meme stocks will depend on your individual circumstances.
- If you are dabbling in stocks for fun or looking to make a fast buck, then perhaps more of a lean towards meme stocks is acceptable.
- But if you are approaching your end goal in your investment cycle, perhaps reaching retirement age, then you need to pile more of your investment funds into safe stocks…especially those that provide a dividend income.
No one wants to see their portfolio hit by one poor-performing meme stock at a critical time.
Meme Stocks or Safe Trades? Summing It Up
Balance in trading, as in much of life’s activities, is key. There’s nothing wrong with going for meme stock trades, so long as you know you might be heading for trouble. But, if you have reliable, safe trades in your portfolio, any hits are not critical to your total liquidity.
Have you ever traded meme stocks? Did you win or lose? Be honest!!
AUTHOR Derek Sall
Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially--one email, one article, one person at a time.