Why Skillz Stock Dropped Today | The Motley Fool

What happened

Shares of mobile-gaming platform Skillz (NYSE:SKLZ) dropped sharply on Wednesday, as did shares of many other high-growth companies. As of 3:30 p.m. EDT, Skillz stock was down more than 5% for the session. The company didn’t report any news, which has some traders blaming the drop on market uncertainty caused by the Federal Open Market Committee (FOMC). 

So what

Today at 2 p.m. EDT, the FOMC was scheduled to release the minutes from its meeting in mid-June. Whenever there’s a high-profile meeting to discuss fiscal policy, investors tend to get jumpy. Consider that the S&P 500 is up 37% over the past year despite the challenges from the COVID-19 pandemic. But many investors attribute these market gains to federal policy. Therefore, they’re fearful a change could cause a market correction.

Image source: Getty Images.

Now what

For Skillz, nothing fundamentally changed today that will make or break a long-term investment. In the short term anything can happen. Investors could turn overly bearish on Skillz stock tomorrow for unrelated issues like interest rates or bond yields, but there’d be no way to predict this. By the same token, for all I know, Skillz could become the next meme stock and rally from here. Since these things are unpredictable, I choose not to watch the stock price day by day. Rather, I watch the business quarter by quarter.

In the long term, if Skillz grows its user base, increases monetization, and achieves positive cash flow, then these things can carry the stock higher than where it trades today. But it likely won’t be a smooth ride — other investors with a short time horizon can cause the stock to be volatile between now and then. 

Today’s drop underscores the need for Skillz shareholders to have a long-term thesis and a commitment to that thesis even when the stock price is dropping. Without this, investors make decisions based on emotions, which often doesn’t work out well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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