Dimitrios Koutsoubos describes the 5 ways that people lose their money in the stock market. The video contains true examples that will help you comprehend the ideas.
People invest in the stock market to earn money, but very often they end up losing money. It would have been better for them, if they had asked this simple question: “How can I lose money in the stock market?”.
The fundamental reason for losing money is the disparity between value and price, and can come in a combination of the following three general forms:
1. Business Deteriorates: You don’t get the value you had thought you would, because the performance of the business deteriorates.
2. Overpaying: You pay too much to acquire the business.
3. Panic Selling: You sell below the intrinsic value, because you cannot withstand the falling price.
The stock is the cell, but the portfolio is the organism. In order to keep your portfolio alive, you have to know how it can die. I add the two elements that can severely hit or destroy a portfolio.
4. Non-Diversification: A losing pick or a sector, can destroy the whole portfolio.
5. Unlimited Averaging Down: Averaging down is a good practice in general, but if it is unlimited, without realizing it, it can lead to severe loss.
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