One very important reason for people to lose money in the stock market is SELLING WHEN YOU ARE FORCED TO, NOT WHEN YOU CAN.

Let us see what went wrong with one of the portfolios that I used to know.

The client was very conservative and had built a good portfolio over a long period of time. He had a good source of income and would ONLY add to his equity portfolio. The problem with conservative people who have built a good portfolio is the houses in which they live have NO RESPECT FOR THE PAINSTAKING effort with which this portfolio has been built. They think ‘he did nothing and the portfolio got built’. I think this is nonsense, but that is the feeling that people get.

This man had built up a nice portfolio and was living off the portfolio and he died at the age of 70 years. He died and the saga unfolded.

His sons wanted the portfolio to be sold. His wife was not too literate. She was torn between her two sons. I said…the money has to last till YOU die. She assumed her kids will feed her, so she did not need the money. Fair enough an assumption? Well, well.

One son did not have a great job. He was eyeing the portfolio to plunder rather than grow it. I think all of us knew that. Anyway.

To cut a long story short:

Leverage hurts, and this boy did some leverage deals. Give a garland in the hands of a monkey they say. He first lost some of his own money by doing a leverage.

He had health problems which meant he was bringing home even less money than what he used to get.

He had a Rs. 300,000 ANNUAL income and was living in a house (which was luckily still owned by his mom) with a market value of about Rs. 3 crore. 100 times his annual income. Of course he had a brother with whom he would have to share the house….

He had no medical insurance, so his mother stepped in. Even elder brother, mother, etc. had no medical insurance. Nor the cash flow to meet the emergencies.

Obviously THE PORTFOLIO WAS TOUCHED…exactly WHEN THE MARKETS WERE AT THEIR BOTTOM.

THIS IS ONE OF THE WORST THINGS TO DO in the equity market. Sell when you should be buying!!

What could have he done better?

– created an emergency fund (bigger and better)

– Invested instead of speculating

– Insure – death, illnesses, etc.

– Learn about Investing and Invest regularly.

– do learn about and do them

 

 

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  1. I agree with you about creating an emergency fund, this is after going through a personal experience of unexpected Attorney fees this month!!
    Luckily my wife had stashed away enough to cover it for me, else i would have to sell my equity investments(which were for long term)..

  2. How investors lose money ?

    – emotional investing!

    – like investing in PPFAS because PP was a great man!

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