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What are the best ways to LOSE money in the market?


twacowfca
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Efficient market enthusiasts say the stock market is more or less random in its movements and that little or no skill is involved in the management of funds.  If this is true, it should be equally as hard to lose money in the market as it is to make money.  Intuitively, that just ain't so! 

 

Let's come up with a list of the surest ways to lose money in the market.  Then, like Jean Marie Eveillard, perhaps we may discover that the best way to make money is merely to avoid going where we are apt to lose money.

 

Here are a few ways to lose money to get us started:

 

1)  Buy high and sell low

 

2). A corollary of number one is to manage funds that depend on hot money that is withdrawn when the market goes down (most funds) forcing the manager to go against his better nature and buy high (when funds are flowing in) and sell low (when funds are flowing out).  In my opinion this is why most fund managers do poorly relative to the market, long term.

 

It is not even required to be a skilled manager to lose money this way.  Even dummies can use this technique simply by following the herd!

 

3)  Trade frequently.  This may be the surest way of all to lose money because the transaction costs will grind your wealth down slowly with each trade.

 

This is far from an exhaustive list.  What are some other ways to lose money regularly in the market?  No more than three ideas per post please for broad participation.  :)

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Let's come up with a list of the surest ways to lose money in the market.  Then, like Jean Marie Eveillard, perhaps we may discover that the best way to make money is merely to avoid going where we are apt to lose money.

 

 

Or, going short them?

 

Buying frauds, buying into technical obsolscence, especially when the valuation is based off of earnings rather than assets, and buying at a cyclical high.

 

Not coincidentally stocks that share one or more of those characteristics almost always sport low multiples. The best individual longs and shorts at any given time mostly come from the same lower 20% of the market when measured by these valuation multiples (p/e or p/b).

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I think the single best way to lose money in the mkt is to allow fear and greed to rule your investment decisions. The 2nd best method is the non judicious use of credit , the combination of the two is almost a guarantee of a train wreck. I have had personal experience with almost EVERY method that has been documented here and elsewhere to lose money and I am continually discovering new and creative ways to lose dough. I suspect that losing over all is much more difficult than this thread posits how ever.  Mr Chanos has not exactly been knocking it out of the park in the last 12 years which has been arguably the best period to lose money in a couple of generations.

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It's for you not to be extremely skilled in investment selection (nothing wrong with that, being average works) and choosing a partner in the form of an investee that is equally unskilled. That's a sure way to lose money. Having a skilled partner or you being the skilled investor both work, but it doesn't work well when both players are average or worse, then the result is naturally average or worse.

 

 

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Investing without a firmly held opinion of IV. This is primarily because of not doing enough leg word and research to develop that conviction. When you invest without conviction, damn, Mr Market starts popping up in your head when the stock price declines and stays there for a while.

 

This is an idea from Howard Marks but resonates with me strongly.

 

Vinod

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