11 Best Ways to Lose Money in the Stock Market

Mak­ing mon­ey in the stock mar­ket can be as easy as reg­u­lar­ly invest­ing in a broad mar­ket index fund and let­ting it run for a very, very long while. But who wants to pas­sive­ly watch their invest­ments grow slow­ly when they can go through the roller­coast­er of emo­tions that is the full stock mar­ket expe­ri­ence?

If we lis­ten to Black­Rock 1, not that many peo­ple. Accord­ing to their data, index­es “account for 17.5 per­cent of the $67.9 tril­lion in glob­al equi­ty mar­ket cap­i­tal­iza­tion”.

So chances are that you, like many oth­ers, buy indi­vid­ual stocks. And if you do that, you must believe that you can beat the stock mar­ket. Well, don’t let me dis­cour­age you. But you might appre­ci­ate some tips.

Often peo­ple focus on what you need to do, but I often find it as use­ful to know what you shouldn’t do.

In that vein, here are the eleven best ways to lose mon­ey in the stock mar­ket


1. Use Leverage

Lever­age or mar­gin trad­ing means bor­row­ing mon­ey from your bro­ker to place larg­er trades.

There is sim­ply no bet­ter way to lose your mon­ey in the stock mar­ket than to use lever­age. Indeed, the poten­tial for a wrong trade to wipe your life sav­ings in sec­onds is unmatched. Even if you end up clos­ing a few trades in prof­it, pulling this off con­sis­tent­ly is a chal­lenge I wouldn’t rec­om­mend.

If your trade goes bad­ly, you’ll either need to put more mon­ey in your account or your trades will be auto­mat­i­cal­ly closed by your bro­ker to cov­er your loss­es. In the end, you might end up los­ing more mon­ey than the total val­ue of your invest­ment.

2. Speculate

If you like gam­bling on the casi­no but you’d rather do it from the com­fort of your own home, then spec­u­lat­ing is for you.

“An invest­ment oper­a­tion is one which, upon thor­ough analy­sis, promis­es safe­ty of prin­ci­pal and an ade­quate return. Oper­a­tions not meet­ing these require­ments are spec­u­la­tive.”

Ben­jamin Gra­ham

Spec­u­la­tors’ goal is to prof­it by pre­dict­ing short-term price moves in an asset. For an exam­ple of spec­u­la­tors, just look at the peo­ple who got caught up in the cryp­to mania back when it was going up like crazy.

If you spec­u­late based on gut feel­ing, emo­tions or fol­low­ing the herd, you might as well call it gam­bling.

The indi­vid­ual investor should act con­sis­tent­ly as an investor and not as a spec­u­la­tor.”

Ben­jamin Gra­ham

Don’t try to pre­dict short-term mar­ket fluc­tu­a­tions. Base your deci­sions on facts and analy­sis.

3. Constantly check your portfolio

Watch­ing stocks dai­ly can wreak hav­oc on our emo­tions. See­ing stocks go down a few per­cent­age points caus­es us real pain and stress. If the stock is going down, we feel stress because of the poten­tial loss. On the oth­er hand, if we stock is going up, we might con­sid­er sell­ing at bare­ly a prof­it because we fear it might go down after­ward.


“Invest­ing should be more like watch­ing paint dry or watch­ing grass grow. If you want excite­ment, take $800 and go to Las Vegas.”

Paul Samuel­son

It’s best to ignore the ran­dom, short-term fluc­tu­a­tions and let your port­fo­lio grow at its own pace. If you only hold index funds, this is much eas­i­er psy­cho­log­i­cal­ly to do. Indeed, we can all agree that the econ­o­my grows in the long term. On the oth­er hand, if you hold a few stocks, there are much shaki­er guar­an­tees as to their long-term per­for­mance.

4. Buy high and sell low

Most peo­ple already buy high and sell low when they should be doing the oppo­site. When the mar­ket goes up, they think that it will keep going up, so they invest. Sim­i­lar­ly, when the stock mar­ket does down they sell because they think it will keep going down.

“Long ago, Ben Gra­ham taught me that ‘Price is what you pay; val­ue is what you get.’ Whether we’re talk­ing about socks or stocks, I like buy­ing qual­i­ty mer­chan­dise when it is marked down.”

War­ren Buf­fett

The aver­age stock mar­ket per­for­mance since 1926 is 7% (after infla­tion) and the mar­ket has gone up in about 70% of years. Despite this, investors still pay too much atten­tion to short term fluc­tu­a­tions.

In every invest­ment you do, con­sid­er the long-term.

5. Try to time the market

No one can con­sis­tent­ly pre­dict mar­ket cor­rec­tions.

Only liars man­age to always be out dur­ing bad times and in dur­ing good times.”

Bernard Baruch

Mar­ket tim­ing is attempt­ing to pre­dict the market’s cor­rec­tions to try to get in and out at exact­ly the right time to max­i­mize prof­its. It’s basi­cal­ly the ugly cousin to spec­u­la­tion.

Far more mon­ey has been lost by investors prepar­ing for cor­rec­tions, or try­ing to antic­i­pate cor­rec­tions, than has been lost in cor­rec­tions them­selves.”

Peter Lynch

Try­ing to prof­it from big mar­ket changes para­dox­i­cal­ly leads us to lose mon­ey instead. Don’t base your invest­ing strat­e­gy on try­ing to iden­ti­fy cor­rec­tions.

6. Trade often

By open­ing and clos­ing trades often, you will lose mon­ey both on bro­ker fees and on tax­es.

7. Read the news daily

Most of what you read online today is point­less. It’s not impor­tant to your life. It’s not going to help you make bet­ter deci­sions. It’s not going to help you under­stand the world. It’s not going to help you devel­op deep and mean­ing­ful con­nec­tions with the peo­ple around you. The only thing it’s real­ly doing is alter­ing your mood and per­haps your behav­ior.”

Shane Par­ris

The pur­pose of many finan­cial news sites is not to inform you, but rather to gen­er­ate the most atten­tion-grab­bing con­tent pos­si­ble. They are inter­est­ed in fill­ing their pock­ets, not yours.

Avoid news sites that:

  • Encour­age you to buy or sell indi­vid­ual stocks.
  • Make pre­dic­tions on future mar­ket move­ments (i.e: “a bear mar­ket is com­ing”)
  • Men­tion pat­terns form­ing in the ran­dom move­ments of stock mar­kets.
  • Have click-bait titles.

8. Follow the crowd

Is every­body sud­den­ly buy­ing stock X, mak­ing it grow way faster than its fun­da­men­tals allow for? Watch out! Remem­ber what hap­pened to cryp­tos? The dot-com crash? The tulip mania? Exact­ly.

Avoid mak­ing deci­sions based on how much a stock has been grow­ing in the short-term.

Invest­ing in index­es is again a great way to han­dle this.

9. Rely on a financial advisor to invest for you

One of the options to get start­ed invest­ing in the stock mar­ket is to rely on a finan­cial advi­sor. They are trained pro­fes­sion­als who active­ly invest in stocks in order to try to out­per­form the stock mar­ket.

The prob­lem with using finan­cial advi­sors is three­fold:

  • They often do worst than the mar­ket

Accord­ing to Van­guard 2, for the 10 years lead­ing up to 2007, the major­i­ty of active­ly-man­aged U.S. stock funds under­per­formed the index they were seek­ing to out­per­form

  • They need to out­per­form both the mar­ket and their own fees

The vast major­i­ty of active funds have high fees, so not only do they need to out­per­form the mar­ket, but they also must make enough to cov­er the fees you are pay­ing them!

  • Choos­ing one of the few advi­sors who out­per­form the mar­ket is nigh impos­si­ble

Indeed, there’s just no way to pre­dict which advi­sor will out­per­form in the future.

10. Trade using your gut feeling

Trad­ing with your gut feel­ing is not invest­ing. It’s gam­bling. Feel­ings have no place in a sol­id invest­ment strat­e­gy.

11. Don’t learn from your mistakes

Mis­takes hap­pen. But learn­ing from them is option­al. Instead of mov­ing on right away, con­sid­er look­ing back at what went wrong and what went right.

Did the mis­takes hap­pen because of inex­pe­ri­ence or bad deci­sion mak­ing?

How will you avoid the same mis­takes in the future?

Some­times we don’t have enough expe­ri­ence to know why we made a mis­take. If you are in that sit­u­a­tion, here are the two books I rec­om­mend to learn about good invest­ment prac­tices. They are not for the com­plete begin­ner.

Recommendation for investing successfully

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One of the coolest things about M1Finance is that they sup­port frac­tion­al shares. You don’t have to wor­ry about your mon­ey sit­ting idle in your account with­out being invest­ed. Every dol­lar you add will be allo­cat­ed. Final­ly, there are no man­age­ment or com­mis­sion fees, so every dol­lar you invest adds to your future wealth.

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  1. https://www.reuters.com/article/us-funds-blackrock-passive/less-than-18-percent-of-global-stocks-owned-by-index-investors-blackrock-idUSKCN1C82TE
  2. https://www.thebalance.com/index-funds-vs-actively-managed-funds-2466445

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4 Responses

  1. Nice list you’ve got here! I’ve def­i­nite­ly made some of these mis­takes in my ear­li­er years when I tried to active­ly invest. I didn’t lose a lot of mon­ey per se, but the oppor­tu­ni­ty cost to try to beat the mar­ket was a ton of time. In hind­sight, I should have con­cen­trat­ed on real estate invest­ing ear­li­er. Ah well, I’m pret­ty pas­sive these days and even use a wealth man­ag­er to keep my port­fo­lio in check.

    • Oracle of FI says:

      Sounds like at least you got some­thing out of the expe­ri­ence, that is you learned to even­tu­al­ly rely on pas­sive invest­ing 😌. When you say wealth man­ag­er is it like a finan­cial advi­sor, auto­mat­ed invest­ing solu­tion or some­thing else?

      • So it’s a fidu­cia­ry that will man­age the port­fo­lio accord­ing to a defined set of rules. Most of the equi­ties are in low-cost index funds, but they stay on top of rebal­anc­ing, tax loss har­vest­ing, etc.

        • Oracle of FI says:

          Inter­est­ing! I like the part where they opti­mize tax­es for you.

          I usu­al­ly rec­om­mend against pay­ing for some­one to man­age your mon­ey, but I think it can be a valu­able thing when you have a siz­able port­fo­lio and the has­sle of man­ag­ing it man­u­al­ly is not worth it. Thanks for shar­ing!

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