Recovering losses from Stockmarket!

[David123]

Hey All!
I was listening to radio this morning and a guy said he had lost his life savings from the stockmarket cause he invested in one stock that went down the gurgler.. It Got me thinking bout how often this proberly happens! But more to the point how would you go about recovering it! This guy was retired now on a pension (so his house is all he has left). Rather sad story!
Have you Just kept investing and hopefully one day you will recover it! or is it a case of once bitten twice shy!


David

[Timmy]

I think it is good when people, like the gentleman you refer to, explain how they lost significant sums in the market because it helps others avoid making the same mistakes. The mistakes here (admittedly on very limited information) are 'all eggs in one basket' (life savings in one stock) and failure to sell as the price fell (I assume 'down the gurgler' refers to a price fall).

So here are two good lessons on what not to do.

There are plenty of people making plenty of money in the market, but there is a lot to learn about investing and trading. "Hope" should not enter into trading and investing considerations at all. Try research, hard work, focus and discipline instead.

[arae]

I'm just curious, did he mention which stock it was and his reasons for selecting it?

I agree, there's a lot that can be learnt from these mistakes, most of them noted by Timmy above.

[Pager]

Ive had a few stocks go belly up over the time ive been investing directly in shares (10+ years), Sons of Gwalia was the worst.

It has also happened to one time market darlings like Onetel or HIH, think anyone who invests solely in just 1 or 2 stocks is adding to the overall risk, although SGW hurt it only had a limited impact overall and in the past few years gains have far far outweighed what i lost, also claiming the capitol loss went some way to easing the pain.

Although company's like Centro, ABC or Allco haven't gone under they are barely worth a fraction of what they were worth 12 months ago, i had Allco and again took a hit but just shows the advantages of diversification.

As the old saying goes, don't put all your eggs in 1 basket no matter how blue the stock.

[Grinder]

Worst story I ever heard was one from a guy who borrowed heavily on the advice of his broker in a share called brex in the 90s (don't know how it is spelt) but aparently in was going through the roof. Then it was found out as a fraud.... the rest is history.

[son of baglimit]

bre-x was some imaginary gold mine in northern canada that was found to be a fraud about 5 years ago.

i think it scared a few out of resources for fear of same - now that'd hurt

[So_Cynical]

Hows that saying go?

"a fool and his money are soon separated"

Something like that....as for recovering the losses.

"never throw good money after bad"

http://idioms.thefreedictionary.com/throw+good+money+after+bad

[bvbfan]

Bre-X was listed in Canada but the gold mine was in Indonesia.

Apparently the geologies disappeared on a helicopter flight over Indonesia.

It was a lot more than 5 years ago. Bre-X folded in 1997.

It's thanks for Bre-X we have a JORC code & Canadian equivalent NI 43-101

[pajm]

I certainly would not be wacking all my money into one stock (particularly on the advice of a ticket clipper) but on the other hand believe diversification is overrated. Anyone who has concentrated in the resources sector over the past few years would know this. My experience has been that if you find a few good stocks you concentrate and hammer them, keep buying/building.

[It's Snake Pliskin]

The drawdown would be totally mental.

[Schmuckie]

Bre-X was certainly the market darling at the time. One of my co-workers lost almost all of her portfolio after investing most of it in Bre-X.

Not putting all your eggs in one basket is good prevention.

Another thing to keep in mind: if it's too good to be true, it usually is.

I remember the gut feeling I had before the news about Bre-X. The feeling was that Bre-X stank to high heaven. It turned out that gut feeling was right.

I had the same feeling about a company called Livent. I called that one right too.

I'm trusting my gut on Canada's latest market darling and not touching it with a barge pole.

Trusting your gut is good advice too. Maybe you don't know why it doesn't feel right, but in the worst-case scenario, you've missed a good opportunity. There's always other opportunities, it's better to dodge a bullet.

[Pommiegranite]

There is nothing wrong with 'putting your eggs in one basket'. Many people do it with other asset classes eg property

For what it's worth, I don't believe my approach should be used for investing in any stock where the target market is at the mercy of economic conditions eg resources. You may think that every stock is at this mercy, but it really is not the case. Some stocks can thrive on global doom.

I have my eggs in one basket for the following reasons:

1. I traded in my stock in the early days so my capital is well and truly convered barring bankruptcy (which can't happen at the stage the company is at)

2. I have researched this company thoroughly, and by 'thoroughly', I don't mean reading a few posts on a few forums. You have to live and breathe this company by spending hours daily on research to to with all eventualities.

3. For me to diversify would be seen as opportunity cost. I never second guess my own judgements. This is weakness. Weakness is costly.

I know this may seem crazy to many off you. However my priority is to make a lot of money. This does not happen with minimizing risk.

Ready to be mocked!:)

[Timmy]

There is nothing wrong with 'putting your eggs in one basket'. Many people do it with other asset classes eg property

For what it's worth, I don't believe my approach should be used for investing in any stock where the target market is at the mercy of economic conditions eg resources. You may think that every stock is at this mercy, but it really is not the case. Some stocks can thrive on global doom.

I have my eggs in one basket for the following reasons:

1. I traded in my stock in the early days so my capital is well and truly convered barring bankruptcy (which can't happen at the stage the company is at)

2. I have researched this company thoroughly, and by 'thoroughly', I don't mean reading a few posts on a few forums. You have to live and breathe this company by spending hours daily on research to to with all eventualities.

3. For me to diversify would be seen as opportunity cost. I never second guess my own judgements. This is weakness. Weakness is costly.

I know this may seem crazy to many off you. However my priority is to make a lot of money. This does not happen with minimizing risk.

Ready to be mocked!:)

Hey PommieG - no mocking from me - what a great post! Very good point - the problem is not necessarily (as I said initially) 'all eggs in one basket' but more so in not knowing enough about the basket. Nice one.

[Timmy]

PommieG

Can I ask if you use technical analysis in your trading? It appears you obviously use a lot of 'fundamental' analysis in your decision-making, any TA also?

[MRC & Co]

If your going to be that risky why don't you just buy a few crude oil contracts?

Some great fundamentals and far larger potential upside.

Though you say you want a stock that will thrive on 'global doom', gold?

So you cannot disagree with oil futures if you are simly trying to maximise both R:R, you buy a stock that will benefit from economic meltdown (ends), oil is the means. :eek:

[nizar]

The drawdown would be totally mental.

But more than worth it dont you think?

(If you are referring to a concentrated portfolio in resources the last few years).

[njc.corp]

HMM-i reckon balance is the key-i cant have 1 stock with a lot of my money in it-no matter who it is or how good that stock does every year-

at the moment- i have 5 stocks that are not doing to well-i still hold them as i have 17 stocks dragging the 5 bad ones-

like some one said before to good to be true- if i was to tell everyone here i had 22/22 winners- people would say u are a freak- and i would even say this is to good to be true as i am not the best trader-luck only goes so far-

i honeslty like to see how the bad ones are going as the good stock's and reasearch takes care of it self-(i dont know why yet but thats what i have seen on my stuff )

beside's if i had just 1 stock i would be breaking one of my the rules- and that is stressing to the max-

my 2 cent's

Thanks

Nick--

[diminike]

Well, putting all your money in one company isn't so smart. What I do, is putting a stop-loss (8%) at all of my shares. Ones a share price is falling, don't hope it will start to raise, but sell.
And when a share price raises, let it raise :)

Dimi

[cuttlefish]

There is nothing wrong with 'putting your eggs in one basket'. Many people do it with other asset classes eg property

For what it's worth, I don't believe my approach should be used for investing in any stock where the target market is at the mercy of economic conditions eg resources. You may think that every stock is at this mercy, but it really is not the case. Some stocks can thrive on global doom.

I have my eggs in one basket for the following reasons:

1. I traded in my stock in the early days so my capital is well and truly convered barring bankruptcy (which can't happen at the stage the company is at)

2. I have researched this company thoroughly, and by 'thoroughly', I don't mean reading a few posts on a few forums. You have to live and breathe this company by spending hours daily on research to to with all eventualities.

3. For me to diversify would be seen as opportunity cost. I never second guess my own judgements. This is weakness. Weakness is costly.

I know this may seem crazy to many off you. However my priority is to make a lot of money. This does not happen with minimizing risk.

Ready to be mocked!:)

Ok I'll bite. I think that regardless of how thorough the level of research, that it is still highly risky to have all your capital in the one stock. It would be interesting to know which actual company it is because it would make it a little easier to find some risks you may not have considered, but in my opinion a black swan event can hit any company no matter how robust the balance sheet and how sound the fundamentals. That being said - there is usually enough time to scrape your way out of these things if you are monitoring the stock closely and have your wits about you - as stocks rarely go from robust to delisted overnight - but it can still happen in theory.

If its finance then there is the risk of fraud and the risk of dishonesty about the quality of the loan book etc. and a big debt blowup somewhere.

If its insurance there's the risk of natural disaster.

If its manufacturing there are a variety of legal risks including class actions due to a manufactured product causing illness or injury, there is the slight risk of a new invention making the manufacturers goods obsolete, there is the risk of plant failure or fire, explosion or natural disaster hitting the plant. And also risk of industrial action.

If its mining or oil/gas there are all sorts of risks including a mine disaster, weather/natural disaster, a bad accident requiring shutdown of significant mines or major compensation, or also again the possibility of massive environmental disaster and huge compensation payments for cleanup (e.g. an acid spill destroying wildlife or even getting into a local water supply etc.). Don't think that even a big company like BHP is 100% immune to this sort of thing. There is also the risk of industrial action and legal action from a competitor.

If its property development I don't think I need to say anything - there's all sorts of risks and we've seen plenty of property developers go belly up. Similarly for commercial property there's all sorts of risks including liability, fraud etc. that could come out of the blue.

If its alcohol/tobacco then there's the class action/liability risk and competitive risk as well.

I'm pretty sure some combination of the above risks could be extended to other market sectors as well.

No matter how good the research I personally think that no portfolio should have more than one third of its capital in any one stock and preferably not more than 20% of capital in any one stock.

[diminike]

If you put all your money in one stock, please make sure you place a stop-loss at a certain level... you don't want to lose all of your money.

And, why not diversify your portofolio?:banghead:

Dimi

[tech/a]

Why not TRADE one stock as against invest.

There are many who know the movements of particular stocks intimately and can profit handsomely.

Futures and Index traders put all their eggs in one basket every trading session.

[cuttlefish]

An index represents a basket of stocks so arguably trading an index incorporates diversification. Trading only one stock with all capital would also be equally as risky as investing in only one stock. A single stock can go into a trading halt at any time and never trade on the market again. This won't happen to an index.

In relation to futures trading - commodity markets themselves are not going to dissappear overnight - i.e. there will always be a market for gold, oil, wheat etc. - so again this seems to have less risk than trading a single stock - though I would have thought allocating all capital to trading a single commodity would be risky as well.

All markets theoretically have a settlement/counterparty risk but the exchanges as I understand it have an allocation of funds set aside to cover this risk (whether this allocation is adequate in the case of a systemic failure is another question).

[diminike]

Why not TRADE one stock as against invest.

There are many who know the movements of particular stocks intimately and can profit handsomely.

Futures and Index traders put all their eggs in one basket every trading session.

Some people don't have time to watch the market every minute of the day.
Traders do not always sell with profit :)
And they trade in different stocks.

Dimi

[brty]

Cuttlefish has really nailed it here.

In property, commodities and indexes, the price will never go to zero. However there are many individual stocks that have done just that.

Even in trading it would be incredibly dangerous to put all your eggs in one basket with stocks. The fantastic century zinc mine was owned by Pasminco, the management of that company managed to have huge hedging losses, the share price went to 0. Yet the mine itself continues to go gangbusters producing huge profits for its new owners (who essentially bought from the liquidators of pasminco).

Share certificates are (well use to be) pieces of paper, a small percentage of ownership in a company that you have no influence over.

A commodity contract is just that, a contract.

A property is just that, a physical property that you control.

An Index is a large number of companies, hence a spread risk.

The absolute risk of any one share is always much greater than any of the others.

brty

[Trembling Hand]

In relation to futures trading - commodity markets themselves are not going to dissappear overnight - i.e.

That's what the Indian Futures traders thought as well before their market got pulled overnight to "control" food prices. :rolleyes:

[peter2]

Ah, TH, I was thinking the same thing. :)

I was wondering if the buyers of an Indian soybean futures contract were able to sell or are they stuck with it?

I wouldn't expect that the Indian contracts could be offset with a US contract. :D

Cuttlefish: What were property values worth in the great depression, a meal?
Commodity prices did return, but could you survive the drawdown period?

[MRC & Co]

Why not TRADE one stock as against invest.



Trading one stock and putting ALL your investment capital in one stock at one time is a different story.

Beware of the black swan!

[cuttlefish]

Ah, TH, I was thinking the same thing. :)

I was wondering if the buyers of an Indian soybean futures contract were able to sell or are they stuck with it?

I wouldn't expect that the Indian contracts could be offset with a US contract. :D

Cuttlefish: What were property values worth in the great depression, a meal?
Commodity prices did return, but could you survive the drawdown period?

Why are you asking me about property prices when I haven't mentioned them at any time in this thread ?!?

My literal statement in relation to commodities was that commodities markets don't dissappear. I did not state that futures markets don't dissappear, in fact I mentioned counterparty/settlement risk exists in all markets. I also didn't say commodity prices don't fall and in fact stated that I thought it would be risky to trade only one commodity.

I don't trade futures and didn't even know there was an indian futures exchange but it sounds like the counterparty/settlement risk that I mentioned did eventuate in that situation.

I'm afraid I don't really understand the point of your post.

[Timmy]

Beware of the black swan!

OT, and probably not helpful, but all the swans are black around here (except the baby ones - cygnet? -, they are a sort of furry grey).

[MRC & Co]

OT, and probably not helpful, but all the swans are black around here (except the baby ones - cygnet? -, they are a sort of furry grey).

Yes, there are a few around here.

But look at the start of this thread, for very good reason.

Fair enough if you have a bit of cash you don't mind loosing and want to take a 'gamble' so to speak, but for 99%+ of people on here, it is not appropriate IMO.

Each to his own and if you can make it work, good for you, just ensure you don't give it all back over time as most do. Guys with this mentality are probably more prone to gambling and so, the first scentence in this paragraph rings even more true.

[nioka]

There is a best way and many other ways to recover losses and I don't profess to know the best but I know what worked for me.

1. Go back to basics.
2. Do some(plenty) research.
3. Adopt the policy of slow and steady wins the race.
4. Do your gambling at the race track and not on the stock exchange.
5. Don't under any circumstances put all your eggs in one basket unless you are prepared for substantial losses.
6. Have another go.
7. Accept the fact that there is both good advice and bad advice on this subject.