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There was an article that discussed how novice traders lost money on Gamestop mania lured by the promise of a gold rush with the help from stock -trading discussion boards and apps that make it easier than ever to invest and lost a fortune.
“Salvador Vergara was so enthusiastic about GameStop (Links to an external site.) Corp. GME +14.75% (Links to an external site.)in late January that he took out a $20,000 personal loan and used it to purchase shares. Then the buzzy stock plunged nearly 80%.
GameStop’s volatile ride is hitting the portfolios of individual investors like Mr. Vergara who purchased the stock in a social-media-fueled frenzy. These casual traders say GameStop was their “YOLO,” or “you only live once,” trade. They bought around its late January peak, betting it would continue its astronomical climb. While some cashed out before it crashed (Links to an external site.), others who hung onto their shares are in the red.
Mr. Vergara, a 25-year-old security guard in Virginia, started investing four years ago after deciding he wanted to retire young. To save money, he drives a 1998 Honda Civic, eats a lot of rice and lives with his dad. He stashed his savings mostly in diversified index funds, which are now valued at about $50,000. Then Mr. Vergara, a longtime reader of the WallStreetBets page (Links to an external site.) on Reddit, saw others posting about buying GameStop shares and the stock’s colossal rise.
He didn’t want to touch his index-fund investments, so instead he got a personal loan with an 11.19% interest rate from a credit union and used it to fund most of his GameStop purchase. He bought shares at $234 each.
GameStop shares started the year around $19, zoomed to nearly $350 (and almost hit $500 in intraday trading) in late January, and then began to spiral back to earth. The shares closed Friday at $52.40, down 85% from the peak close.
“I thought it could go up to $1,000. I really believed in that hype, which was an awful thing to do,” Mr. Vergara said.
He plans to hold on to the shares because he believes in the company’s turnaround, he said, and use his paycheck to cover the monthly payments on the personal loan. Once the pandemic is over, he hopes to move back to his native Philippines, live off savings and start a charity. The GameStop loss set those plans back about six months, he said.
What do you think about a requirement of professional certification such as the SIE Exam that can also be made for individual investors to invest in public markets? In this way, many new inexperienced investors will have a good understanding of the risks and returns of investing in the stock markets.
^^ Write a reply of 136 Word for the Above Discussion.
Individuals who meet either one of the following two criteria is defined as accredited Investors:
‒ Have a net worth of at least $1,000,000 (excluding their primary residence) or
‒ Have a gross annual income of at least $200,000 (or $300,000 combined with a spouse) for
each of the past two years, with the anticipation that this level of income will continue.
In August 2020, The Securities and Exchange Commission (SEC) adopted amendments to the “accredited investor” to also include investors based on defined measures of professional knowledge, experience, or certifications in addition to the existing tests for income or net worth.
“What is a SPAC?
A special-purpose acquisitions company is essentially a shell company set up by investors with the sole purpose of raising money through an IPO to eventually acquire another company.
For instance, Diamond Eagle Acquisition Corp. was set up in 2019 and went public as a SPAC that December. It then announced a merger (Links to an external site.) with DraftKings and gambling tech platform SBTech. DraftKings began trading (Links to an external site.) as a public company when the deal closed in April.”
https://www.cnbc.com/2021/01/30/what-is-a-spac.html (Links to an external site.)
You can read more about SPAC’s on the link below
https://www.sec.gov/oiea/investor-alerts-and-bulletins/what-you-need-know-about-spacs-investor-bulletin (Links to an external site.)
https://www.pwc.com/us/en/services/audit-assurance/accounting-advisory/spac-merger.html (Links to an external site.)
Investors Flock to SPACs, Where Risks Lurk and Track Records Are Poor
“Critics worry the SPAC boom could end badly for smaller investors who don’t understand the risks. “These types of very speculative companies should not be sold to retail investors at such an early stage,” said Howard Schilit, head of accounting consulting firm Schilit Forensics.
SPACs have a poor record of delivering returns. Of 107 that have gone public since 2015 and executed deals, the average return on their common stock has been a loss of 1.4%, according to Renaissance Capital, a research and investment-management firm. During the same period, the average return of companies that went public via IPOs was 49%, the firm says.
https://www.wsj.com/articles/investors-flock-to-spacs-where-risks-lurk-and-track-records-are-poor-11605263402?st=x2wybej2mzs699p (Links to an external site.)
Do you think that investing in SPAC should be restricted to an accredited investor?
^^ Write a reply of 135 Word for the Above Discussion.