As a financial analyst and seasoned investor, I’ve seen my fair share of market upheavals. The chase after ‘hot’ stocks can be exhilarating, but what do you do when those stocks plummet? Now, as we progress through 2024, I’m seeing those pandemic darlings—once untouchable—fall from grace. You might wonder: do I have grounds to sue? If your advisor didn’t spell out the risks, then yes, you just might.
The Thrill and Crash of Popular Stocks
My analysis confirms a well-known fact: index funds typically beat stock-picking in the long run. The S&P 500, for instance, gave a robust 12% return over the past decade. Pinning your hopes on a single stock can be risky business.
Despite this, 2020 was a year of massive growth for certain stocks, luring both seasoned and novice investors alike. It’s your financial advisor’s job to help you avoid investment traps. But when share prices are shooting up, did those advisors miss the warning signs?
Boom and Busts: 2020’s Star Stocks
Let’s look at the high-flyers turned fallen stars: Peloton, Roku, Shopify, Netflix, and Zoom.
Peloton is a cautionary tale, seeing a 97% price dive in 2023 from its 2021 peak. When regular routines returned, gym memberships rebounded, and Peloton took a hit.
Roku’s price tumbled by 82% between 2021 and 2024. Its bet on ad revenue didn’t pan out as hoped.
Shopify’s rollercoaster saw a 380% rise from March 2020 to November 2021, a 75% dip the next year, then a surprising 97% surge in 2023. A real head-spinner.
Netflix felt the sting with a 22% decline in 2022 due to sluggish subscriber growth, affecting funds like Pershing Square.
Zoom rounds out the list, plummeting 87% from a $559 high in 2020 to around $72 by late 2023.
Reckless Guidance: Too Many Eggs in One Basket and Misusing Leverage
Should investors have been better protected from these faltering stocks? Misguided advice, such as pushing a concentrated position in a single stock, can be a serious misstep. It increases risk against financial safety nets. FINRA Rule 2111 and Regulation Best Interest exist to prevent brokers from pushing unsuitable, high-risk investments.
Another pitfall is encouraging the use of margin accounts—effectively, borrowed money—for investments, without clearly explaining the risks involved.
If you were bit by a bad stock pick during the pandemic and feel misled, it may be time to see what can be done. Securities lawyers can be your ally in cases of questionable advice or oversight. They can guide you through the legal maze to potentially recover your losses.
Remember this bit of wisdom from legendary investor Warren Buffett: “Risk comes from not knowing what you’re doing.” And a concerning financial fact is that a study suggested as many as 7.3% of financial advisors had been disciplined for misconduct. Always be sure to check an advisor’s record, like their FINRA CRD number, before taking their advice.
In my years of breaking down complex market trends, I’ve learned that knowledge is power—especially when it comes to your finances. Whether you’re a newcomer or a veteran investor, staying informed means staying ahead. So, always do your due diligence and remember that not all that glitters is gold, particularly in the fast-paced world of stock investing.
