Five Easy Ways To Lose Your Shirt On The Stock Market
By: Abinas Jagernauth
Tags: Investment, Stocks, Investing, Stock Market

It is easier to lose than to make money on the stock market. I don’t know anyone who wants to lose money, but sometimes we take action without thinking it through carefully, resulting in a loss.

No one is a hundred percent successful in their investments. If anyone says he is, he is either extremely lucky or dishonest.

We can all improve our success rate, and reduce our risk, by avoiding the following actions.

1. Take advice from your co-workers, neighbors, family and friends

If someone gives you a stock tip, a “sure thing” tip, ask him to show you his filled order for the stock he is recommending. Nine times out of ten — and I am being generous here — he will not be able to, simply because most people are very good at talking but take very little action.

2. Jump on today’s hot tip from television and radio commentators

These people are paid to talk. They have to fill in the time so they talk, and talk, and talk, and if you pay close attention, some of what they say makes absolutely no sense. Who knows what stocks they themselves buy or own, or who, if anyone, is paying them to promote a certain stock. Yes, I am very suspicious, and you should be too. It’s your money; study and think carefully before you invest it.

A few years ago a senior business reporter justified buying the stock of a struggling hi-tech company by saying that she was thinking of the greater good. The company in question was once a high-flyer but was now being viewed by most as headed towards the hi-tech scrap heap.

How is taking unnecessary risk, and possibly losing your money, contributing to the greater good?

3. Borrow money to buy stocks

This is a very bad idea, especially for a beginner. You borrow money to buy stocks hoping that the stock will go up, you then sell it and make a killing, and pay off the loan making a tidy profit. There is no guarantee that the stock will go up. What happens if the stock heads south, as the saying goes? What happens then? You may be forced to sell the stock at a loss and to use the funds from the sale to pay down the loan. That’s right, pay down the loan, not pay it off, which will leave an outstanding balance still to be paid.

4. Buy stocks recommended by a stock broker

Stock brokers make money when you buy stocks and they make money when you sell stocks. It is called commissions. It is their job to sell stocks. That’s their job; that’s how they make money. So how can they be impartial? Are they thinking about what is best for you, their small client, or are they recommending stocks to you that a wealthy client is trying to unload? I know. I am very suspicious.

5. Buy stocks recommended by stock newsletters

Many stock and investment newsletters are available at considerable cost. I recommend staying away from these.

I have seen many cases where the recommendations did not pan out, and I have done much better on my own than follow the advice in these newsletters.

The business pages also have recommendations by analysts. What is very interesting is that these analysts have different opinions on the same stocks, and recommend different stocks. Who is right?

These are only some of the ways to lose money very quickly on the stock market.

There are many other ways including:

treat it as a gamble — it is not; if you want to gamble buy lottery tickets or go to Vegas;

buy high and sell higher — someone recently said this to me; and

buy high, sell low, and make up the difference on the volume. I kid you not, someone actually said this to me. He thought it was funny.

The thing about money is that if you make fun of it, laugh at it, or mock it, it will abandon you. Would you hang around someone who is constantly making fun of you? If you want money in your life, treat it seriously and with respect.

It is much better to study and follow a system you understand and are comfortable with.

Make you own decisions and take responsibility for them. In the long run you will have greater control over your investments, make more money, and be much better off.