15 Ways to Lose Money in the Markets

There is a lot of investment advice based on what you need to do to be successful.

You don’t see many people taking the opposite approach and talking about what you are it shouldn’t do.

There are many ways to succeed as an investor, but only a few ways to fail.

Here are some surefire ways to make bad investment decisions:

1. Pretend you’re smarter than the market. Investing is easy! Beating the market is not that difficult! You are certainly smarter than the collective wisdom of millions of other investors.

How hard can it really be to beat the market?

2. Constantly try to time the market. Think and act in extremes. Go all in when you feel the market is in a good place. Get out of the market when things look in danger. Keep jumping in and out until you’re rich.

Anyone can do it.

3. Tracking performance. Follow the hot hand. Invest with the star fund manager the financial press just fell in love with. Fads follow. Get tips on the hottest stocks.

There is no luck involved in short-term performance. It’s all skill.

4. Fight the last war. Hedging the huge risk that just happened. Buy the Black Swan fund after the huge crash just happened. Invest in that inflation hedge after prices have already risen. Make the decisions you wish you had made before you lost money.

Driving in the rearview mirror feels safe, so it should work, right?

5. Get investment advice from billionaires. When billionaires go on financial TV or share their thoughts on the markets or the economy, they’re talking directly to you. I know your financial circumstances, risk tolerance and time horizon. They follow the exact same investment strategy as you. They never change their mind or make statements to the financial press that they don’t actually believe.

What’s the harm in buying the same products as George Soros or Stanley Druckenmiller?

Billionaires are just like us!

6. Worry more about being right than making money. Who cares about the results of your investments? Intellectual superiority is where it’s at. You don’t have to worry about investment performance when you can complain about the level of government debt, blame the Fed for killing free markets, and pick on politicians all day long.

Continue reading Zero Hedge. That should settle everything.

7. Benchmark your portfolio against the best performing asset class. Who cares about diversification when there is always one asset class, strategy or sector that outperforms?

Spend your days thinking you don’t have more money invested in the best short-term performing asset class. Then take all your money and invest it in the best performer.

Simply repeat this strategy over and over.

It has to work eventually, right?

8. Blame the Fed when you underperform. When you’re right, it’s pure skill. When you’re wrong, it’s all the Fed’s fault. The system would have collapsed if not for Greenspan, Bernanke, Yellen and Powell.

Don’t worry about introspection following a bad prediction about the end of the financial system as we know it.

Don’t just get it wrong early.

9. Live and die in the short term. Nobody has time for the long term. The sure path to wealth in the markets comes from following every economic data point, earnings announcement, headline, financial news and crazy conspiracy theory on social media.

You need to be aware of these things to be able to react in real time.

It is not like the market prices in which these things.

10. Sell all your stocks in a bear market. Bear markets are far too painful to pass. After stocks get low, sell your stocks and wait for the coast to clear.

How hard can it be to choose bottoms?

11. Let’s say you’re the next Warren Buffett. The guy is from Nebraska. Just memorize some of his popular quotes and read a book or two about his investing style.

Stock selection is easy!

12. You overreact to market volatility. Volatility is scary. Panic. Change your portfolio. Abandon your asset allocation, diversification be damned.

There is no time for critical thinking. Act first, think later.

13. Be pessimistic about everything. Optimism is for gullible people. Everything is always bad. The world is falling apart.

What’s the point of investing in a world gone to hell?

14. Investing is boring. Just speculating! Zero-days options trading. Gamble. Shoot the moon. Markets are rigged anyway.

Why try?

15. Try to become rich overnight. Forget your goals. Delayed gratification is for losers. Take as much risk as possible to create wealth in the shortest time.

What’s the worst that could happen?

Further reading:
The 20 Rules of Personal Finance