Guaranteed way to lose money

by Manshu on November 2, 2012

in Opinion

I feel that one strange thing about the stock market is that it is most attractive to those people who are most likely to lose money on it. I first invested (rather speculated)  just before the dot com burst, and the only reason I was attracted to the market was fast money.

Guess what? The people who are attracted to fast money are the most likely to buy penny stocks, momentum stocks, “sure-shot” stocks, day trading stocks and generally anything that has a good chance of going to zero.

I think I must have invested in all these type of stocks at the time, and I can’t remember if anything ever went to zero, but it certainly came close to it.

I was reminded of that time because of this email I received last week.

Hi,

I have been following your blog since long and have learnt a lot of things. Now i thought i should ask you something to help me financially.

Looking forward to your reply.

To invest in intra day is a lot of work and i dont know much about investing. Now are there institutions out there where i can invest my money in or any share broker who i can trust with my money and he in turn reinvest it in intra day trades… Or any service that provides intra day tips???

I understand this a question from a noob but then again.. Please do reply.

I made a brief reply cautioning the reader against doing this because these type of things just don’t work, and you can meet hundreds of people who have lost money this way.

If you don’t know anything about the markets then it is better to invest in a well known mutual fund regularly rather than taking your money and giving it to someone who promises to double it in a year doing intra day trading.

If they could really make money like that they would be doing that with their own money, and not seeking capital from others.

People who sell intra-day tips are even more inexplicable; if their tips are so good, why aren’t they acting on them instead of giving them out for a fee?

Short term predictions hardly ever work. Before putting your own money, you can very easily create a fake portfolio and follow the advice of “pundits” who predict market movements and see where it leads you. Do this for three months and see the results before putting your real money in day trading.

Most pundits advise you to buy when the stock market is up and sell when it is down, which is the exact opposite of what you should be doing.

I don’t know of an easy way of doing this but it will be fun and enlightening to see what traders and pundits were Tweeting out about this time last year, when the market was really bad, and in hindsight, also presented a good opportunity to buy. I think you will find that none of them were too enthusiastic about stocks at the time.

If you want to trade, at the very minimum, you should be willing to spend the time needed to understand what trading strategy is being followed and ensure that you aren’t being taken for a ride by people who are just punching buy and sell orders on a whim.

This is difficult but at least it will give you the comfort of knowing what’s happening with your money. There are trader conferences that you can attend and while you will never find that information on OneMint, there are other blogs and websites that you can read to get that information. If you are attracted towards trading then you must spend the time before spending the money.

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{ 8 comments… read them below or add one }

Hemant Beniwal November 2, 2012 at 6:35 am

Hi Manshu,
So simple but people don’t want to understand :(
“If they could really make money like that they would be doing that with their own money, and not seeking capital from others.”

Reply

Bhushan November 2, 2012 at 7:27 am

Trading is like gambling in a casino. There are some people who have made money in casinos, but there are many more who have lost fully. Now if you are trading with your money (assume you are playing in casino), then after losing some money, you will walk out. Instead if you give your money to traders and ask them to play, they will enjoy playing in casino, till everything is lost.
Our aim in stock market should be to get decent returns which will beat inflation over long term.

Reply

position_trader November 2, 2012 at 8:41 am

The short answer is Yes, you can make money by short term trading. Quite a decent bit of money. But here’s the disclaimer. To learn how to make money in the markets consistently by the short term trading will definitely be one of the most difficult and time consuming things you will ever do. Over 90% of the traders never become profitable traders and lose money. And there is a very good reason for this. To become a trader, you not only have to master the markets but also to lose your ego. And yeah, never follow anyone’s tips. Never believe anyone who says they are right 90-100% of the time. Never believe anyone who says they will double your money in a few months. Heck, if you wanna do it the right way, be prepared to lose money the first couple of years or so. But on the plus side, it is also the most challenging things you will ever do as no two days, or for that matter even hours, are ever the same, no matter how much experience you have got. If I haven’t scared you too much and you are still interested in trading, here’s a post I wrote on advice for new traders which you might find useful – http://trader9999.blogspot.in/search/label/Advice%20for%20new%20traders

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Vimal Raj November 2, 2012 at 11:11 am

Don’t ever trust anybody on the money part. You are the king of your money, so play with your own risk.

As Manshu said,
“Before putting your own money, you can very easily create a fake portfolio and follow the advice of “pundits” who predict market movements and see where it leads you. Do this for three months and see the results before putting your real money in day trading.”
– this is a good idea and will help you to learn about Market.

Thanks Manshu again for the useful post.

Reply

Ams November 2, 2012 at 1:08 pm

Very well written post Manshu and rightly said about putting in your own hard earned money instead of asking form others.

I hope many read this post and benefit from it, so as to stop listening to these so called pundits.

Thanks,
Amit

Reply

Paresh November 2, 2012 at 1:39 pm

Recently, I was out of my town for a month.
I decided to have paid tips on my mobile..I think it will help me to keep track of markets.
So I registered for mcx / nifty tips at one of the portal.

more than 80% stop losses hit.

When I later check the performance posted for that month on the portal,I was shocked..totally different calls were posted as performance of that month.

Though I don’t loose money in market as i don’t have traded these calls but loose subscription amount and get a good lesson.

As far trading is concerned,a discipline is quite important.
Losses are inevitable in speculation but one need to take care of the equation:

Summation: Profit > Summation :Loss

Reply

shashank November 2, 2012 at 4:33 pm

I partially agree with your view on trading Manshu.As we know, capital markets always present an opportunity to make money..since it is a zero sum game somebody losing also means someone else is gaining.. So one can not rule out the potential gains in trading..however it should be a well informed and researched approach and not on hearsay or tips. .I think its best to keep ones core portfolio with experts thru MFs and allocate part of ur corpus (and time as well) to trading..

Reply

Santanu November 4, 2012 at 10:25 pm

Enjoyed the article…thanks

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