GoPro (instead of ETF) – bankrupcy risk

[Esterkin]

Hi, don’t you fear a bankrupcy risk of GoPro? And how about broker fees: as far as I know DeGiro has only “free” ETFs but no free stocks.

[letYourMoneyGrow.com]

Hi Esterkin,
well, yes, we did warn Elle about the bankruptcy risk (or, literally, that “GoPro may spend more money that it earns selling its cameras”). But there is also a chance that the stock price will (more than) double, so we did allow this trade (we would not if it were a definite falling knife).
And even if GoPro goes bankrupt, the earlier Elle learns the pain of loss with small sums, the better is for her in the long run.

[Esterkin]

Tnx, but what about broker fee?! For “small sums” you cannot disregard them, can’t you?

[letYourMoneyGrow.com]

That is really a point!
However, for American stocks they are fortunately small: slightly more than €0.5 per trade.
We announced that we set a stoploss by -20%.
If we, for simplicity, assume that we also take profit by +20%, we need the probability to win to be at least 53% just to stay breakeven. Indeed: 0.53*97.56*1.2 + (1-0.53)*97.56*0.8 = 98.73
But we think the chances in this case are even better than 53%.

Moreover, the ETFs are also not “free” in the long run.
Have a look at https://letyourmoneygrow.com/2017/10/01/etfs-dont-save-indeed-increase-costs-long-term/

[Call Me Baloo]

Hi, I would like to give you a hint, when it comes to stock picking. Usually, successful investors are looking for companies with high market entry barriers. Think of Warren Buffet. Unfortunately, there are a lot of other companies, that have emerged doing the same as Go-Pro. Another point you have to watch while investing in equities is the management. I think Go-Pro had a lot of management issues. A last but very crucial issue is the valuation. The company is still almost worth 1 Billion. A big amount for a company without earnings. What is interesting to note is the fact that 25 % of all stocks are sold short. This means that those investors one day have to buy those stocks back. If the company manages to provide good news, those short sellers will certainly be in trouble. But we have to aknowledge that those guys are very professional and remain skeptic towards that company, for now.

Best regards

Hans

[letYourMoneyGrow.com]

Hello Hans,

thank you for your insightful comment.
Yes, as we explicitly mentioned in our blogpost, we tried to explain Elle (in a suitable manner for a 7y-kid) that GoPro does not earn money (although it does produce good action cameras).

But ok, let a girl have some action :). Finally, even if she makes a loss with this investment, it will be her Lehrgeld.

[Author]

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