3 Lessons: Don’t Go Broke Investing

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In the world of investing, there are tons of mistakes you can make. Many of these mistakes are so costly that people kill themselves over them. So please don’t take the following stories lightly.

The emotional reaction to watching a life’s work evaporate is stunning. Other than losing a loved one, I can think of no greater loss. It’s not the money that affects people. It’s the time, effort and mental anguish that the money represents. It’s the family time you gave up to deliver that project and make your asshole boss happy. It’s the meetings, company retreats, networking, backstabbing, stress and so on.

If you’re lucky, you make these mistakes when you’re young and have little to lose and lots of time to make up for it.

Below are three stories of great financial mistakes various Reddit users made in the markets. The first of which just happened yesterday:

u/optionsnewbie24

I went long on an oil etf Friday afternoon after oil took a huge hit Friday thinking it would recover. I had a 175k position. I’m looking at it today and it’s at 1885 dollars. I’ve lost it all. I’m not sure where to go from here. It was extremely risky and stupid and was my life savings. I’m 28 and make 45k. Most of that was money I saved from inheritance. Not sure where to go from here. I have proof of all the trades. This hurts. I also have a baby on the way and recently married. I was greedy and tried to increase my money and instead lost it all.

u/civgarth

I’m a former derivatives trader with ___. At 28 I found myself in a margin call of 300k. My fiance found me crying on the floor when she came home. We were due to be married in a few months. As a pro, I can’t frontrun and all my trades were shunted behind retail trades. I saw Nortel go from 120+ to 30. (I think though I could be wrong). This was in the year 2000.

Today at 44, with my wife (same lady), we’ve rebuilt our wealth many times over. As long as you learn what got you in your position, and are cognizant about the lesson each time you decide to do something, you will be fine.

Also, look for some help with the gambling. I was trained and paid to do this and still lost everything. It’s a zero sum game.

u/xenocidic

As a relatively new investor, I fell in love with a stock. I thought… Nutritional algae! That’s where it’s all going. (Narrator: It wasn’t.) So I bought. And I bought. And I kept buying, even as it kept going lower and lower. Dollar cost averaging, right? That’s what you do! Buy more…

All I have to show for it is the documents from the firm’s bankruptcy telling me my shares were cancelled and deemed worthless ($TVIA).

I don’t share these stories for amusement. Use them as lessons.

Lesson 1: Placing a massive bet on a single idea – no matter how confident you are – is always a bad idea. Treat each investment as something that could possibly go to zero. It doesn’t matter how much sense your thesis makes, how old the company is or how many people agree with you. Any investment can go to zero under the right circumstances.

Lesson 2: You can believe you’re doing the smart thing (e.g. dollar cost averaging) and still wind up losing money. Dollar cost averaging should be applied at the portfolio level, to ensure you remain fully diversified. It shouldn’t be used as a way reduce your cost base in a single losing position.

Lesson 3: Even pros screw up big time. You’re not a pro supported by a team of researchers and spending 10 hours a day analyzing investments. So stay humble and expect to make mistakes.

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