You don’t have to be a genius to work out that if only we could avoid the losses, we would all be winners.
The first rule of making it is not losing it.
So here are my ten top tips on not losing money.
- Inside information. I have a colleague who has professionally traded all his life. It’s what he does. He tells us “If I had never been given any inside information, I would be a million pounds better off than I am today”.
- IPOs. The golden rule of IPOs is that if it’s any good you won’t get offered it. If you get offered it, you don’t want it. IPOs are not a road to gold, most of them are insiders selling you their company at the highest price they can get.
- Pretending to be Warren Buffett. The concept that you can emulate Warren Buffett has cost investors more than it has ever made them. No one has ever managed to replicate Warren Buffett’s performance. The concept that you can is the biggest draw card the equity market marketing department has ever played and it is a lie. We all keep buying the dream.
- Gurus. Go to any rain forest, discover any tribe and you will find them huddling under some concept of God and his creed. It is a human need to be able to answer the unanswerable questions and we do it by deifying someone or something. In our search for answers to the stock market’s unanswerable questions we credit our commentators with vastly more powers than they could possibly deserve or possess. And dangerously, he who guesses the boldest guesses the longest.
- Greed. The biggest killer of them all. Approaching the stock market with greed is like running onto a battlefield in bright orange. We’ll get you.
- Leverage. The mechanism of greed. Leverage is marketed one way. But it works both ways. You lose much faster as well. That means it only works for some of the time and not all of the time. It only works when you are right and with average equity returns after interest, transaction costs, inflation and tax of close to zero, man, you had better be right and right at the right time. You cannot habitually use leverage to “invest” unless you have a massive financial cushion. Any broker will tell you, its for confident (or over-confident) traders and to make it work they have to trade at the right time not all the time. That’s a big ask for someone with a day job.
- Confidence. What’s the core function of the finance industry? I’ll tell you. It’s marketing. And oh do we have some material to work with. The finance industry is never short of a success story to free your wallet from its back pocket so we sell success, and examples of the successful, and suggest it comes from mere participation in the financial markets. When it comes to marketing, losers don’t attract attention so you won’t hear about those. The winners stay and play, and we raise them up. The losers, conveniently, go away. And thank goodness for that. Imagine how much product we’d sell if we raised them up.
- Expectations. The root of all happiness. The root of all unhappiness. Expect the unexpectable and expect the inevitable. Best you expect the expectable.
- Laziness. The nucleus of many of many investor’s largest losses. There has been more money lost through not doing anything than effort. Let’s get this straight. There is no easy route to riches in the stock market, there is no free lunch, so participation without effort is not enough – participation without vigilance delivers an outcome you don’t control that is not guaranteed.
- Life. My mum used to say there are three foundations for spiritual and financial happiness and success. Your relationship, your job and where you live. Get one of those wrong and they all go wrong. No mention of the stock market in there. The stock market is not life. It is a side issue. The biggest financial decisions you will make in your life have nothing to do with the stock market. Like getting married, getting divorced, having kids, investing in your home and committing to your career or your business. These are the biggest financial decisions you’ll ever make. Focus on those. The stock market is not a priority.
And I haven’t even mentioned boats, the number eleven way to lose money…or lending money to a family member…actually that should be number one!
Source: Marcus Padley