5 stories of the sudden rise and fall of stocks due to investor mistakes and how they could be avoided
The field of stock investment may seem difficult, and often it is. Hasty actions here can lead to losses and even embarrassing situations. There are many examples in history of how investors made mistakes on a massive scale, as a result of which they not only risked their own funds, but “pumped up” or collapsed the capitalization of entire companies.
In our article today, we will consider five cases of rise and fall of stocks due to strange and ridiculous mistakes of investors, as well as manipulations of the companies themselves. We will also discuss how to avoid such situations and reduce risks in exchange investments.
Note : any investment activity on the exchange is associated with a certain risk, this must be taken into account. In addition, to use the capital protection methods described in the article, you will need a brokerage account, you can open it online . You can study trading software and practice performing operations using test access with virtual money .
Shares of Electronic Arts collapse due to loss of license of a popular football club in FIFA 20
One of the most recent cases - the shares of the company-developer of games Electronic Arts collapsed due to the loss of a license to use the name and image of the Italian “Juventus” form. This team is a multiple champion of Italy, and more importantly, it is in its composition that Cristiano Ronaldo, one of the main stars of world football, acts.
In the new version of the simulator, Juventus received the fictitious name Piemonte Calcio. On the day that this became known, the company's shares lost 4% of the value. The reason for this could be a lack of understanding by investors of the extent of the problem. Many of them probably thought that with the loss of the Juventus brand, Ronaldo would disappear from the game - and this would put an end to the whole simulator for his fans’ army. However, in fact, EA still has the right to use the actual Italian league squads, so only the name of the team and its form have changed. Therefore, subsequently, the share price was adjusted:
The rise and fall of Nintendo shares in the wake of the popularity of Pokemon GO
Everyone remembers the frantic success of the mobile game Pokemon GO. In the minds of fans of the game and the entire Pokémon universe, the connection between the project and Nintendo turned out to be very strong - and with the popularity of the game, the shares of the corporation began to go up. The cost of Nintendo securities grew by 50% in less than a week, and their total trading volume exceeded $ 10 billion.
An interesting point was that the game was developed by The Pokemon Company and Niantic - these are the names that appear on the application’s start screens. Nintendo also participated in the project, but its share did not exceed 32%.
Pokemon GO App
In the end, the leadership of the Japanese company was forced to publicly declare that it was not the development of the game that Nintendo was involved in. Soon after, the "learned the truth" investors began a total sale of shares, which led to a drop in their value by 30%. Thus, the capitalization of Nintendo still remained in positive territory following the results of this story.
DI Corporation Iron Maker Rises Due to Gangnam Style Clip
In October 2012, shares of the semiconductor testing device manufacturer DI Corporation soared more than 800%. There was no apparent reason for this growth directly related to the business. But there was one, connected indirectly.
As it turned out, the chairman and main shareholder of the company was the father of the singer PSY, who shot the same clip with wildly popular popularity. Moreover, the artist himself had a certain number of shares in the company. That was enough.
Interestingly, according to the results of this story, the usual return of shares to the initial price level did not occur in such cases. For many years after the release of the clip, the capitalization of DI Corporation remained at a significantly higher level than before, although some price correction did occur.
Investors mistakenly bought shares of a random company after the takeover of Google startup Nest
A few years ago, Google made a pretty big deal - it acquired a startup to develop smart thermostats and other components of smart home systems called Nest. The deal amounted to $ 3.2 billion, and this also caused great interest in the activities and development of the company.
As a result, investors who had not heard the name yesterday, hoping for an increase in the value of Nest shares, bought so many of them that the securities grew by 1900%. The problem is that the Google-bought startup Nest Labs was a private company and did not issue shares for trading on the exchange. All this time, people bought shares of the company randomly - the NEST ticker belonged to Nestor Inc. This company has developed traffic control systems for government customers.
Moreover, by the time this story started, the company had already gone bankrupt and sold all its assets, but its shares could still be bought. And as it turned out, such surges in the value of these shares have happened before. Even before the takeover of Google, NEST shares soared in value by 10,000% - after the news about the release of the new smoke detection system from Nest Labs.
In the end, NEST shares were withdrawn from the exchange, and today it is no longer possible to make such a mistake.
Companies used the word blockchain to increase capitalization
From December 2017 to January 2018, statements about rebranding and the launch of a new direction allowed companies that were previously not related to IT to sharply increase their capitalization. Then the cryptocurrency market was at its peak.
In December 2017, the tobacco company Rich Cigars Inc. became Intercontinental Technology, Inc. and announced that she plans to engage in mining, her stock quotes increased by 2233%. Several other companies from the field of medicine, construction, food and light industries made the same rebranding.
This move helped for a while. Thus, the shares of the aforementioned Rich Cigars Inc, as well as the securities of a number of other companies, have substantially fallen in price already within two weeks after rebranding.
How can investors protect themselves from such stock price spikes?
Unsubstantiated ups or downs in company stocks occasionally occur. However, for investors, in general, such events carry more risks than opportunities to earn. To avoid the temptation to succumb to the mood of the crowd and in the wake of hype to buy shares of the company, which can soon seriously fall in price, it is necessary to use low-risk investment tools. These include, for example, structural products or model portfolios.
Structural products - these are collected in a single portfolio of various financial instruments. Analysts of a brokerage company select them in a certain proportion in order to ensure either minimal or near-zero risk when investing on a stock exchange.
It works like this: assets with low risk and a small possible profit and more risky assets are “collected” in a structural product, which, if successful, can bring a higher income. The idea is simple - if the risky tool “does not work” and there is a loss on it, then it will be compensated by the profit from the less risky asset - therefore its volume in the structure of the structural product is higher.
For example, 90% of a structural product may be federal loan bonds (OFZ), and 10% of a company’s shares. This is how a structural product with a capital protection level of 100% might look like:
In turn, a model portfolio is an investment portfolio that consists of several securities selected for certain criteria (for example, bonds or shares of one sector of the economy). It is somewhat similar to a structural product, but there are fewer opportunities for risk management, although investments can be started with slightly smaller amounts (tens, not a couple of hundred thousand rubles).
Such portfolios are convenient for novice investors who have several tens of thousands of rubles, but have no experience working on the exchange, which means that there is a high probability of losses in independent trading. Each portfolio has an indicator of expected return, so the investor understands how much he can earn.
An example of such a portfolio: a model portfolio of American stocks - a possible return of 23% per annum with a low level of risk. Read more about model portfolios here .
Useful links on the topic of investment and stock trading:
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