The Stock Market is like a bag of revels. Loads of goodies to enjoy but there’s also that one, you know the coffee one. In this blog, 5 ways to lose money in the Stock Market, Im going to discuss 5 ways you can easily lose money in the stock market in the hope that you avoid these errors .

Investing in SPACS ( Special Purpose Acquisition Company)

A recent addition to the investing world, a special purpose acquisition company is a company created for the sole purpose of generating capital from investors to buy another company down the line. The SPAC has 2 years in which to do otherwise it has to give the investors their money back. A SPAC has NO products, NO sales, NO profits and NO infrastructure. All it has is a bank account which is why they are referred to as ‘blank cheque companies’.

The Process is simple. A SPAC is created and investors pile cash in. The cash is held in a trust for the sole purpose of either merging with or acquiring another company. The SPAC is listed on the Stock Market. If the SPAC can’t find a deal or the deal falls through the money is returned to the investors.

This is (in my opinion), the dummest investment anyone can make. How can you invest in something that you can’t see or understand. Extremely risky, don’t go there.

Investing in Crypto

The difference between investing and speculating is very simple. Investing is the process of allocating capital to something that ( it hopes) will grow providing a return on your money sometime in the future. You’re investing in a tangible asset. You own a small part of a business and therefore it’s stock, plant, order book, customer loyalty etc..

Speculating is allocating capital to something for a price today in the hopes that someone will pay a higher price for it tomorrow. There doesn’t need to be a tangible asset involved. Hype and speculating are intrinsically linked. Everyone makes money when hype is doing its’ job but eventually hype stops working, everyone panics and the whole thing collapses. This called a bubble.

What is crypto anyway? Crypto is a currency; a means to buy and sell goods with a digital form of money. So let’s ask the question ‘What is money’? Money has 3 purposes. It needs to be;

• A medium of exchange between individuals and entities
• A store of value
• A unit of account

Whilst governments back their own currency creating certainty as to its’ value today and tomorrow, anyone can setup a crypto exchange and start a new crypto currency. People have lost their entire savings supposedly investing in crypto. Read this report from the BBC.

Crypto is nothing more than the Wild West and around every corner there’s a Butch Cassidy and the Sundance Kid ready to pounce. Buying crypto is not buying a tangible asset but a speculation that someone is willing to pay more for it tomorrow.

Falling for the sales pitch email scam

Another scam is the guy who has written a book claiming that just by following his new found strategy and techniques will reap you 100% guaranteed return on your investments. The book is free, al you have to do is pay for postage and packaging. Who on earth, making 5 times what the best investor on the planet has been making consistently over a 40 year period, writes a book about his secret and gives it to you FOR FREE!!!

Investing in long shots

Everyone loves a slice of Mrs Miggins’ award winning victoria sponge cake at the Budleigh Salterton summer fête and you can bet you bottom dollar that if you happen to mention that you invest in the stock market to the person next to you in the queue, they will whisper to you their surefire winner before you’ve sunk your teeth into that lovely slice of heaven. Long shots are called ‘whisper’ stocks for a reason. They never work and all you can do is whisper how much you lost.

If you needed a new fridge you wouldn’t just go into town and pick the first one you saw. You’d measure up the size of the space it goes into, its capacity, its energy consumption and the size of the ice dispensing unit before you parted with your cash. It’s called research and yet there are people that will invest loads of money in a whisper stock just because they got chatting to a stranger sipping pimms at a friends’ BBQ. There is no substitute for research and stockopedia has everything you need.

Not investing for the long term

The simplest thing to do is make your time horizon longer so you iron out all the ups and downs of the daily market. Mr Market will give you a good price eventually but only when he’s ready not when you need it. The worst thing you can do, and a sure fire way to lose money in the stock market is to invest your income tax liability or your childs’ university fees that are due within 2 years. Investing in the stock market only works if you don’t need the money for at least 5 years; the longer the better. My investments timeline is minimum 3 years. If the price goes down in the meantime I just add more shares to my portfolio at a bargain discount rate.

5 ways to lose money in the stock market- Conclusion

They say that most things are simple, it’s only humans that make them complicated. Who’s heard of (K.I.S.S). Keep it Simple Stupid. My motto. If I don’t understand it, can’t see a history of improving sales and profits, looks too complicated or looks more like speculation than investing I run a mile. Die casting or flow control systems might be the next big thing but I know nothing about those industries. Give me donuts, burgers, shoes, cruises, books and medical supplies then I’m in. Everyday brand names such as Aviva, Barclays, Halfords, Dr Martens, Dunkin donuts and Mcdonalds all provide good investing opportunities at given points in their lifecycle.

Don’t invest in SPACS, Longshots, Whisper stocks, Crypto or anything that looks to good to be true. It’s not big and it’s not clever.