8-11 Resources

8-11 Resources

This lesson focused on hot topics in the investment world. Obviously, by the nature of discussing “hot” topics, conditions can change quickly, sometimes making hot topics cold and others newly hot. However, the issues in this lesson have been “hot” for some time and should continue to be important for the foreseeable future.

Further, just because an investing theme is “hot” does not mean you should shun it. There are always opportunities to make money in these situations. The first way is by acknowledging and embracing the hot trend. As the saying goes, “the trend is always your friend.” If you are able to “ride the wave” of a hot investing theme, there is a lot of money to be made while the speculative bubble is growing larger. However, you MUST know when to get out before the bubble pops and prices plunge!

The other way to play a hot investing trend is to short it: bet that the trend can’t continue forever upward and that prices will soon fall. The danger in this strategy is that, as economist John Maynard Keynes has famously remarked, “markets can stay irrationally strong longer than you can stay liquid.” So, the key is getting your timing right if you want to short a hot investing trend.

The wisest choice, especially for a new investor, is to keep your money far away from anything that seems too popular, too hot or too much of a “can’t miss” investment.

Once again, knowledge is power. The reverse, lack of knowledge, can become problematic in the investment world. Having a basic understanding of the popular topics in this lesson should help you increase your successes and better control your losses. Like a successful sports team, at the end of measurable periods (day, week, month, quarter, and year), you should strive to have more wins than losses. You needn’t strive to be perfect, as you might become discouraged. Try to achieve a good knowledge base and a smart strategy to maximize your winners. Be aware of the “hot” topics and use them to help you achieve your investing goals.


Manias – happen when there is a surge of investors who buy the same stock solely because they see the price is going up. This is characterized not just by a spike in the stock’s price but also trading volume.

Crashes – happen when many investors sell off the same stock at the same time, causing the price to sharply decline. A “Crash” happens because investors start to panic, leading to more and more selling, with very few buyers. Crashes often occur after a mania.

Bubbles – A “Bubble” is when a mania mindset covers an entire industry, or even the stock market as a whole. More money is transferred into that industry, or the stock market, because investors see that returns are rising, which drives up prices further. This means there are more buyers than sellers. “Bubbles” always pop, causing an industry-wide, or market-wide crash. It’s always a major challenge to identify if stock market trends are due to stable long-term growth, or if a bubble is forming.

Day Trading – The act of buying and selling the same stock within the same day. “Day Traders” seek to profit from very short-term ups and downs in one or two single stocks’ prices.

Level 2 Quotes – A basic quote has the current bid and ask for a stock, but Level 2 quotes show the entire Bid/Ask queue, along with the potential volume at every price point. A day trader would leverage Level 2 quotes to identify if there is currently more buyers than sellers, or visa versa, to time when they make their trades.

Swing Trading – The act of utilizing short-term “channels” in a stock’s price to try to “buy low” and “sell high”, usually within the same week. This is not as chaotic as day trading, but relies on an underlying assumption that a stock’s price has no good reason to change. Therefore, the investor buys below the “fair price”, and sells when it rises above the “fair price”.

Penny Stocks – Stocks with a very small market cap, usually not listed on major stock exchanges and trade “over the counter”. Penny stocks often do not follow the same reporting requirements with the SEC (like audited financial statements), and are considered a very risky investment.

Pump and Dump – An illegal investing scheme where a company buys many shares of a near-worthless stock, then distributes false or misleading information that implies that the company is about to become very valuable. When other investors buy into the stock, causing the price to slightly increase, the “pumper” sells all their stock and keeps the profit. This is a form of investing fraud.

Buy and Hold – The investing strategy promoted by Warren Buffett, where an investor purchases stocks with no exit strategy; the plan is to hold the stocks forever. This mindset is advocated by many financial advisors and is popular both because of its focus away from short-term trends, and tax advantages.

Growth at a Reasonable Price – An investing strategy that compares companies in the same industry by both their Price/Earnings ratios and Projected Earnings Growth to identify which companies are under- or over-valued compared to their industry peers. GARP is a popular approach to using fundamental analysis to choose between different companies within the same industry.

Insider Transactions – Trades on a stock made by a company’s own management team, filed with the SEC and publicly available for other investors to see. Many investors consider insider transactions to be part of their fundamental analysis and are skeptical of companies whose executives are selling off stock.

Short Squeeze – An act by a large institutional investor, or a coordinated group of small individual investors, to buy large amounts of stock in a company that is heavily short-sold by other investment firms. This forces the short sellers to experience heavy losses and buy back the stock at a higher price, earning profit for the “Squeezers”.

Cryptocurrency – An entirely digital asset based on a blockchain technology that enables trusted peer-to-peer exchanges of value, (money, intellectual property etc.). Cryptocurrencies began with Bitcoin as an effort to create a store of value that was entirely decentralized, i.e. controlled by a network instead of a company or country. Without much regulation or public understanding, cryptocurrencies are seen as speculative and/or as high risk investments.

ESG Investing – Investing based on environmental, social, and corporate governance principles. ESG investing is used by people and investment firms that want to “feel good” about what they are doing with their investments, but recent trends show that ESG-based investing can match, or even out-perform, the market as a whole.


Try your hand at one of the investing styles described in this chapter that interests you the most and make several trades in your practice account to get a feel for how the strategy works.