How To Lose Money and Hate The Stock Market

Raise your hand if you love the stock market!

Who’s with me?

I imagine rooms full of families reading my blog – all with hands-raised as if they’re riding roller coasters.

Who doesn’t love the stock market?

The S&P 500 is up for the sixth straight week, hovering around a 4-year high. The volatility index hit a 5-year low.

Disclosure:

I may be a little biased. I graduated from college in 2008 and began investing soon after. You could say that I entered the market at an ideal time. It’s been nothing but bullishness.

Maybe my views would be different if I were 67 and had plans of retiring 4 years ago. Unfortunately, my 401(k) lost 1/3 of it’s value and now I have to work a few additional years. If that were the case, I’d probably be pissed.

How To Lose Money and Hate The Stock Market

I’m not 67 and I don’t want to pretend to be. I will, however, pretend that I’ve lost loads of money in the stock market and I’ll share how you can do the same! If you want to be successful (and make money like I have), I would recommend doing the exact opposite of the tips below.

• Don’t Meet With Your Adviser Regularly

There are fee-based financial planners and there are commission-based financial planners. Both SHOULD dish out similar advice but since incentives greatly influence our actions, the two advisers probably won’t recommend the same investments. Even having said that, they SHOULD still recommend investments that are suitable. What is suitable now may not be suitable for you 1, 2, or 3 years from now. Things change so I would highly advise meeting with your adviser regularly (recommended quarterly; annually at least).

• Check Your Brokerage Account or Stock Daily

This may seem like opposing advice from the above, but it’s not. One of the biggest mistakes you can make is to check your investment accounts daily. By checking your accounts daily, a drop of 30 cents/share will drive you crazy. A few consecutive “bad” days may cause you to sell everything.

If you do want to follow your investments closely, here’s my advice. Open up an online brokerage account with Scottrade or TD Ameritrade. Put 10% (and only 10%) of your investments into this account. If you are going to follow along closely and make impulsive decisions, only do so with a small fraction of your investment fund.

The bulk of your investments should follow Ronco’s advice of “set it and forget it.”

• Watch The News

The news only focuses on a few things: Tornadoes, Crazy Stock Markets, and Casey Anthony. They focus on these things because it sparks emotional responses. Emotions should not be part of your investment strategy. The news will get you too excited and cause you to jump into something you shouldn’t or it will get you too scared and cause you to miss out on an opportunity.

• Take Stock-Picking Advice From A Friend

Everybody has a friend (or a friend of a friend) that “pays attention to all that stuff.” We’ve all fallen guilty of it. I can honestly say this is the biggest investing blunder I’ve made. A few years ago, my brother called me out of the blue and told me to check out something. His wife’s friend (that’s a Doctor) has a hot stock tip. It’s gotta be good. It came from a Doctor!

Without any due diligence, I bought into the stock. Two weeks and a Gulf Oil Spill later, I lost a lot of money.

• Buy High, Sell Low

It’s one of the most bizarre, most irrational things people do. When we’re buying any sort of product, we LOVE buying it on sale. But when it comes to stocks, we don’t have the same feelings. When people see green (after stocks have already risen), everyone dives in. When people see red (prices are getting cheaper), everyone runs for cover. Don’t do what “everyone” else does. Buy Low, Sell High.

The best way to avoid this trap is to take advantage of dollar-cost averaging. By investing incrementally (a fixed amount for an extended period), you will effectively buy more shares when the price is low and less shares when the price is high. You’re probably already using this strategy with your 401(k) and you don’t even realize it.

Readers: Do you have any other suggestions on how to guarantee stock market losses?