Recent turmoil around ‘hot stocks’ in the public markets

Peter-Paul Van Hoeken
February 4, 2021
2 minute read
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In the last few weeks several hot stocks have been on a rollercoaster in the stock markets with sharp swings in their share prices. The highest-profile one was the videogame retailer Gamestop (GME). Earlier this week we also saw silver become a flashpoint, driven by smaller investors that communicated mainly through the WalStreetBets group on Reddit.

Main Street taking on Wall Street

Firstly, the recent rallies were driven mainly by trading activities by smaller investors that identified opportunities for taking advantage of positions and commitments held by larger institutional traders, including hedge funds. In the case of Gamestop, the upward rally forced those investors who betted against stock, hoping the stock price would fall, to close their positions and incur significant losses.

So arguably, these rallies were more related to trading positions (short-sell and options) and less with the actual underlying performance and outlook of Gamestop. However, these recent rallies have demonstrated the power of the public, large numbers of small investors who, enabled by digital online do-it-yourself trading platforms and online discussions via social media platforms like Reddit, can literally take on Wall Street.

Retail trader beware!

Following these stock trading rallies in the public markets, we would like to clarify what this may mean to you as an investor. Actively trading stock in the public markets is risky, stock prices may change quickly and significantly without there being any fundamental changes to the company. The amount of risk depends on your financial situation, risk tolerance, investment objectives and horizon, and your knowledge of investing and markets.

No bulls or bears in the private markets, but still risky

FrontFundr is not active in the public markets, but in the private markets. As an investor on FrontFundr, you are investing in securities such as shares, convertible notes or debt issued by companies themselves. There is no secondary market (yet) to sell your securities. Opportunities for liquidity typically occur in the event of a trade sale of the company or if the company goes public on a stock exchange.

While FrontFundr also offers investment opportunities that are less risky and backed by assets (such as real estate), the majority of investment opportunities on FrontFundr are early-stage companies that carry high risk (and potentially also high returns) due to uncertainty and significant risk of failure.

Making informed investment decisions

At FrontFundr it is our mission to create and maintain an accessible, inclusive and trustworthy private markets place. We take investor interests very seriously, especially as FrontFundr offers unique investment opportunities available to investors of all walks of life, including first-time investors. Our goal is to enable investors to make informed investment decisions by carefully reviewing the information made available for each investment opportunity on our platform, as well as encouraging investors to do their own additional research.

Private markets – A portfolio decision

Investments in the private markets should typically be part of a well-balanced and diversified investment portfolio. Traditionally, investing in the private markets was available only to wealthy investors and professional investors. FrontFundr has made private markets investments available to the public. Because of the typical low minimum investments, smaller investors are able to participate in the private markets and even spread risks within their private markets portfolio.

In these times of health, economic and social tumult, remember that private markets are not moved by bulls or bears, but by long-term returns that have consistently outperformed the more established public markets over the long term.

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Peter-Paul Van Hoeken