THE BRIEF

Early investors in Genius Brands made a killing, while leaving those that invested late into the game with heavy losses. This is a cautionary tale of the blind leading the blind.

• The stock rose from $0.31 on May 1 to a high of $10.92, a 3,552% increase in a two month period. The stock plummeted over 50% within the next 24 hours.
• Three common investing mistakes: lack of research, investing based on emotions, and relying on non-professional investors for stock picks.

THE EXPLANATION

Genius BrandsGNUS

, a media company that creates and licenses animated content for children has been the hot topic of online trading forums, subreddits, and Facebook groups lately.

Genius’ stock soared at the beginning of May on the back of several announcements that included the June 15th launch of its Kartoon Channel, a free “Netflix” for kids. Investors began posting on online forums about their easy profits which lured uninformed investors into making an investment that they thought would be genius. 

Posting about easy returns in an “Investing For Beginners” group sounds like a recipe for disaster… lo and behold..

THE ACTION

The dash to buyGNUS

revealed several faults that investors often run into:

• Lack of research and understanding of the business… Professional investors will often spend months and even years analyzing an investment.
• Making decisions based on emotions… Online articles that start with “Invest in XYZ to become a millionaire” play with human emotions to create a sense of urgency and desire.
• Relying on non-professionals in guiding investment decisions… When your cab driver starts talking to you about stock recommendations, it might be a good time to sell or avoid outright.