What’s your investing horror story? Anyone who has been investing or trading for some time will have one, possibly more than one.
Apart from the entertainment value, depending on your appetite for relishing the misery of others, there are also likely to be lessons we can learn from reading investing horror stories.
Many of these are tales brokers tell, some of these are my own.
1)Flaming text source https://cooltext.com/Logo-Design-Flaming#google_vignette
Gambling it all away
This is a sad story. One that sharply illustrates how treacherous the financial markets can be.2)Source: https://www.reddit.com/r/stocks/comments/3l9ykx/any_good_investment_horror_stories_that_anyone/
In early 2014 an elderly couple had been listening to financial media hype on how the stock price of a small biotech company, Intercept Pharmaceuticals Inc, stock symbol ICPT, had gone through the roof and made lucky investors rich.
They decided now was their time to enter the market and start day trading. Neither of them had any experience trading, nor actively investing.
They started by taking positions in ICPT. Unfortunately, the day they started trading was the day that ICPT was hammered by the market. ICPT just kept on tumbling lower and they kept leveraging their position. Towards the end of the day, they started trying to sell but it was too late.
They had started the day with around $71,000 which was their life savings. At the close of trading, they were wiped out and they owed the brokerage company around $250,000.
Here is how Intercept Pharmaceuticals stock price behaved covering that period from early 2013 to July 2021.
3)Source: historical stock data Yahoo Finance, all charts, and calculations Bad Investment Advice.
Lessons – There are many lessons from this example. At the risk of becoming repetitive, here would be some obvious ones.
- learn about investing and trading before you start
- before you enter a trade, know where the exits are. i.e. know your required entry price, your stop-loss price, and your profit-taking price,
- manage your risks
- take appropriate position sizes
- use a system, and stick with it
- have technical and/or fundamental reasons for taking positions – did this couple have any reason other than news media hype?
- don’t trade emotionally, don’t double down, the market doesn’t care
- if you treat the stock market as a casino, it will behave like one.
Getting ahead of a new fad
There was a time in 2017 when cryptocurrencies and blockchain had just become mainstream and were the flavor of the month.
In many ways, this was a repeat of the Dotcom boom of the late 1990s, when any company that could portray itself as being internet savvy and has a half-baked business idea that would …
- use the, or
- revolutionize the, or
- do something better than anyone else, or
- do something nobody else was doing . . . with the internet,
- and had dotcom in the company name . . .
could send their stock price into the stratosphere. All you had to do was to be a dot com.
In 2017 companies were changing their names to include “blockchain” and their share price would double overnight. They didn’t have to change anything else about how they did business. Just a name change that incorporated the word “blockchain” did the trick.
So this story goes that a broker saw this happening, recognized it as a new manifestation of an age-old market phenomenon, and thought he would try and get ahead of the game.4)Source: https://www.morningstar.ca/ca/news/196790/investment-horror-stories—and-the-lessons-they-teach.aspx
There had been a lot of publicity surrounding how The Long Island Iced Tea Corp. symbol LTEA, changed its name to Long Blockchain Corp. symbol LBCC and saw its stock price triple in a day. That was back in 2017. Since then the company was delisted from the NASDAQ and has been under FBI investigation.
There has been some more news on this subject. Just recently three individuals involved with the company have been indicted for insider trading, buying shares just before the name change.
But back to our story.
The broker who tells his tale of trying to profit from this new fad, set up his financial news and media scanning channels. His idea was to get in early as soon as an announcement was made, watch the price climb and get out as the hype started to fade.
He found a press release telling him that the Transeastern Power Trust, symbol TEP.UN was about the change its name to Blockchain Power Corp, symbol BPWR. So the game was on.
He got in at around $0.55 a share to watch it creep up to around $0.65 a share.
But then instead of taking what he had and leaving, he researched their business. He thought that even if their own bubble burst the business itself was solid and they would be able to profitably mine Bitcoin benefitting from their own source of low-cost energy.
So he held on.
He held and held while the share price went on a steady downward journey to around $0.06 a share. The last he reported it was around $0.15 but he kept it in his portfolio as a reminder.
Lessons – This was one of Benjamin Graham’s favorite lessons – stay away from hot, fashionable stocks. Ironically, the broker himself feels that this experience taught him the value of not panic selling at the bottom when the price reached $0.06. 5)https://www.morningstar.ca/ca/news/196790/investment-horror-stories—and-the-lessons-they-teach.aspx
Buying a house at the market peak
This is my own story.
I have stayed geographically nimble throughout most of my professional career. I rented the apartments I lived in rather than buying them. This made it easier for me to move from job to job and country to country.
Then in 2006, it was time to settle. House prices had appreciated considerably over the prior years, nevertheless, it was our time to buy.
So we bought.
But we did not take an adjustable-rate mortgage, we took a fixed-rate mortgage.
Then about a year later the subprime mortgage debacle started to unwind. Another year later and our house was appraised at 14% less than we had paid for it.
We stayed. We refinanced to a 15-year fixed-rate mortgage and invested in an extension as was always our intention.
Lessons – Sometimes an investment that may be less than financially optimal is still necessary. The comparison I make isn’t how much better we would have been off if we had bought 5 years earlier. The issue is how much worse off we would be if we had continued renting.
The herd chases growth stocks
This is one of the most common mistakes investors make and one that gives rise to many horror stories. Many institutional investors are also prone to this problem – following the herd. Most particularly, following the herd into new growth stocks.
One of the basic features of growth stocks is that they tend to be valued on the promise of future earnings. Until those future earnings have materialized, that’s just going to mean they are over-valued in respect to current earnings.
Another feature of growth stocks is that they make great news stories that are hard to resist. But the hard truth is that any stock price that is carried to new highs on a sentiment of enthusiasm will likely crash when the sentiment fades.
Another story told by a Morningstar broker is the case of a Canadian growth stock, Valeant which is now named Bausch Health, symbol BHC.6)Source: https://www.morningstar.ca/ca/news/196790/investment-horror-stories—and-the-lessons-they-teach.aspx
Back in 2015, there was a great deal of market buzz around merging and consolidating small companies in the healthcare sector. Valeant was one such company acquiring many smaller providers.
At its peak, for a short time, Valeant’s market capitalization made it the largest company in Canada.
At a certain point, investors realized that there was no real value being created all the rolling-up of smaller healthcare providers into a larger healthcare provider was just financial engineering
The Valeant share price plunged from over $300 to less than $50. Everyone was trying to sell but almost nobody was buying.
7)Source: historical stock data Yahoo Finance, all charts, and calculations Bad Investment Advice.
Lesson – If you join the herd you will go where the market takes you. In good times that will be OK. But at a certain point, the herd will turn. If you are still in the herd you will find yourself running for the exit along with everyone else trying to sell when there are no buyers.
The fall of the mighty Sears
Kmart and Sears merged in 2005. The stock had various small rallies buoyed by experts believing the strategy would work. It didn’t. The problems were structural. The price reached a high of around $147 in April 2007 but declined steadily from then on. It has been languishing at less than $1 since August 2018.
Sears was indeed once a mighty giant. But Sears failed to adapt to the times. Analysts can point to many mistakes and reasons why Sears fell from its heights. When it comes down to it what Sears lacked was an unassailable brand.
One of the criteria Warren Buffet famously looks for is what he calls a moat. Several features about a company contribute to its moat and one of these is an unassailable brand. What that means is a brand that commands such loyalty among customers, that leaves industry competitors in the dust.
8)Source: historical stock data Yahoo Finance, all charts, and calculations Bad Investment Advice.
Lesson – The wisdom of hindsight says that Sears did not have an unassailable brand. It didn’t have what it needed to thrive and survive in the retail sphere. No moat.
Not taking profit to avoid taxes
Many brokers tell stories about clients who refused to take profits on winning positions to avoid capital gains taxes. Holding on well after the stock had run its course. And suffering a loss instead of taking a profit.9)Source: https://www.morningstar.ca/ca/news/196790/investment-horror-stories—and-the-lessons-they-teach.aspx
Lesson – There is a right time to consider how to optimize your investing approach concerning taxes. That time is when you set up your investing system not when you are deciding when to exit a position.
A good example is a system I set up many years ago for my portfolio that involved holding all positions for 13 months. I did this specifically so that I would be taxed at the lower rate for capital gains rather than the higher rate as income.
The time to take profit on a position is dictated by your investing system. If you start changing that and delay exiting positions for tax reasons, often you will turn profits into losses.
The Washington Mutual story
Sometimes big powerful companies double down on losing strategies. If you hold their stock and do the same, you risk following their misplaced strategy with your own misplaced investment strategy.
Washington Mutual at the time of the 2006/2007 financial crisis was one such case. Many institutions bought Washington Mutual stock thinking it was available at a bargain price.
One broker tells the story of how he followed the advice of just one analysis provider, Morningstar, and bought in. 10)Source: https://www.morningstar.ca/ca/news/196790/investment-horror-stories—and-the-lessons-they-teach.aspx
Sadly for those holding the shares, Washington Mutual was taken over by the US Federal Deposit Insurance Corporation, or the FDIC, and JP Morgan Chase bought it in September 2008 for $1.9 billion, a fraction of its earlier valuation. Those who bought in 2006 or 2007 lost heavily.
Lesson – don’t be blinded by the size of a company and past grandeur. They are just as prone to failed strategies, hubris and groupthink. Get more than one opinion when you do due diligence. Sometimes a business strategy that looks brave is just foolhardy.
Being a bull when the market is topping
There are many horror stories of investors trying to apply the approach that works in a bull market when the market has actually turned and is topping out.
You could probably pick any stock ticker on the board and someone will have lost money on it by trying to get in and out when the market went against them.
We’ve all heard that famous phrase that it is easy to make money in a bull market. But if you are a short, or intermediate-term trader you have to take measures when the market tops out. All of a sudden being a short-term bull no longer works. You have to understand where the market is going over the timeframe that you are investing. Understanding market cycles is important here.
This article explains stock market cycles.
Lesson – A simple answer here is that approaches that look at price-to-earnings ratios and price action and other indicators of value, might work well in a bull market, but fail completely once a bear market takes hold. If institutions are accumulating then one approach works. Once institutions are distributing then that approach no longer works.
But in fact, there are deeper lessons to this general problem. You have to know what kind of investor you are and then read the signs the market sends you and adjust according to those signs.
For example, if you are a short-term investor but don’t adjust when the market goes into a short-term decline you can make costly mistakes. Whereas, a long-term investor may prefer to ride out any short-term corrections.
What Forrest Gump didn’t do
He didn’t sell his Apple stock too early.
Well, you could argue against that conclusion. Apple stock was launched in 1980 and if we adjust for stock splits, and convert to today’s share price in its first year Apple stock was trading at around $0.10 a share.
Forrest Gump the movie came out in 1994 and if Forrest had held on to his stock right until the movie was released he could have sold at around $0.30 a share so a 200% gain over 14 years. Really that is just OK for a position held that long. If Forrest had held until today his shares would have been worth $149 a share.
This is what the Apple share price has done since it went public.
11)Source: historical stock data Yahoo Finance, all charts, and calculations Bad Investment Advice.
OK well, maybe the movie was suggesting that Forrest somehow acquired Apple Shares before it went public.
So who did do what Forrest Gump didn’t do?
Ron Wayne was one of the three founders of Apple when they formed a company in 1976. Ron cashed out his 10% of the company just ten days later for $800. As I said above, Apple later went public in 1984. Estimates are Ron’s shares would now be worth around $80 million at least today.12)Source https://moneywise.com/investing/stocks/worst-investment-decisions-of-all-time
It is worth noting that Ron Wayne doesn’t regret his decision. As he says he would not have been able to maintain the pace of work with a young growing Apple for very long and stay sane or even alive for that matter.
Lessons – If you really have the patience to stay invested with a good company over the very long haul then the rewards can be spectacular. But realistically most investors are just not going to be able to do that at least not like Ron Wayne could have. For every Apple Inc., there will be a thousand or more duds that fail.
Timeshares, diplomas, and student debt failed ventures
There is of course a whole other class of horror investment stories. Each one is equally personal to the individual kicking themselves with regret.
Who would have thought, years ago when timeshares were all the rage that this phenomenon would create a business almost as vibrant and I am guessing as profitable – the business of helping people get out of their timeshares?
Another sad and common personal investment horror story heard more and more frequently today is people who got into student debt. They find themselves with a degree or a diploma but they are unable to get a job that pays enough to get them out from under the burden of student debt.
Another category would be all those who launched their own business, failed, and left it at that. At least they will have learned something about themselves from the experience – that may be running a business wasn’t their strong suit anyway.
What Mr. Market tells us
Mr. Market tells us there are many ways to lose money and he is more than willing to help if this is what we want to do.
On the other hand, Mr. Market doesn’t really care.
He doesn’t care what positions you take, or what positions you have gotten out of. Whether you have lost money or made money. So don’t bother trying to teach the market a lesson. The market will just do what the market does.
Here is an article on behavioral economics that looks into how we make economic decisions, good and bad.
Other sources used for this article. 13)https://www.gobankingrates.com/investing/strategy/worst-wall-street-opinions-history/, 14)https://investinganswers.com/articles/5-unbelievably-stupid-things-people-do-their-portfolio, 15)https://moneywise.com/investing/stocks/investors-worst-mistakes
Questions and answers
Q. What is the worst investment in history?
A. There are many divergent opinions on this. Some say Bitcoin is the worst investment though that one is still to play out. Many of us who trade options will have bought options that expire worthless, so a 100% loss. But that’s part of most options trading strategies so it comes with the territory. Some people even say that investing in an education that just got them into student debt with a job and level of pay that will never get them out of debt was the worst investment they ever made.
We all have our own answers to that question.
Q. What is the worst ever margin trade?
A. The biggest margin call that is publically known sunk Archegos in March 2021 and was caused by the famous and infamous Gamestop short squeeze. The popular version is that the short squeeze was caused by many small investors acting together to push the price up. The chances are though that they were helped by institutions who also came for the ride. The hedge fund Archegos was caught on the wrong side of that squeeze.
Q. What is the biggest investment missed opportunity in recent history?
A. That was probably when Ron Wayne sold his ten percent share in Apple for $800 just ten days after it was founded in 1976.
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Here is a single-page PDF summary of investing horror stories.
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|↑1||Flaming text source https://cooltext.com/Logo-Design-Flaming#google_vignette|
|↑3, ↑7, ↑8, ↑11||Source: historical stock data Yahoo Finance, all charts, and calculations Bad Investment Advice.|
|↑4, ↑6, ↑9, ↑10||Source: https://www.morningstar.ca/ca/news/196790/investment-horror-stories—and-the-lessons-they-teach.aspx|
Yes, there are many horror stories out there. I haven’t had mine “yet”. But I do know a friend that bought a house at a terrible time. He bought it literally at the market peak. I hope I never suffer loss from trading under an emotional state. Those kinds of horror stories are the worst of all.
Hi and thanks for the comment. At least if a house ends up costing you more than it could have, you can still live in it. Also, losses are an inevitable part of investing and trading in particular. While uncontrollable emotions are one of a trader’s worst enemies, a bad trading system, poor risk management, and erratic position sizing can be equally as fatal. Good luck and best regards, Andy
What is your investing horror story? when I was investing in earlier years I did not have the patience I would sell out too early. Failed strategies of yesterday’s giants, I have made some investments that were terrible, not full doing my research and not looking at the pro and cons of any investments, not to understand what is at stake, I have made bad discussion on my part, everyone is out to sell to you, or get you to follow them, investing in something even if it’s a lie, most of the time it is, if it is too good to be true It is.
Thank you, for sharing
Hi and thanks for the comment. I have also made some very bad financial mistakes. In some cases, I wouldn’t even refer to them as investments. There are scammers and con artists lurking in every dark place and just as many out in the bright sunshine. A fool and their money are easily parted. Best regards, Andy
I learned the hard lesson on gambling fairly easy at a young age. I always wanted to play fruit machines but my parents would never let me. So this led to even more curiosity. I always looked at the fancy lights and was desperate to play them. Then one day, we were in the shop with my grandfather (who incidentally was a gambler), when we saw the machine. ‘The machine! the Machine!’ we said @We’ve still got 10p left grandad! Can we play the machine?’ My grandfather said yes and we were buzzing.
We got a pear, grapes and a Bar.
That was it. What next? Nothing. That’s it! What a letdown!
I was about 8 years old then and never played them again. Had that not happened, things may have taken a worse course of history. Who knows eh
Hi and thanks for sharing your personal gambling story. I think I was equally fortunate. I was still living in Europe at the time and I was on a trip to Vegas for a convention. I had never seen casinos before and it was all very foreign to me. No attraction at all. At the end of our long 8-day trip, we were checked in at the airport for our flight back to Europe, and the flight was delayed. There were a few rows of slot machines flashing lights at us but nobody playing them. I thought – OK, let’s see what this is all about. – I looked in my pocket and had ten quarters, so $2.50. I started playing a quarter machine. After a few pulls, it started pumping quarters at me. I noticed there were also dollar machines and a scantily clad change lady was walking up and down. So I changed my quarters for dollars and played the dollar machine. Again after a few pulls lights flash bells ring and it pumped dollars at me. This was also attracting attention and people started getting excited and others started playing. I put a few more in the slot, nothing happened. I looked at my pile of dollars and at the change lady and said – OK, please change these to notes. – She did. I boarded the plane with $250 in my pocket, 100 times what I started with.
I’ve never had an urge to gamble since then. There is no way I could better that experience.
This was a very interesting read, even if a little scary. I nearly went into investing and stock. I know nothing about it, just that the ads kept popping up telling me how I could make a fortune doing it, how the apps make things easy and simple. It was always the small print at the bottom of the ad that put me off. Capitol at risk.
After reading the horror stories here I am glad I didn’t touch it in the end, I am unlikely to ever touch it unless I have some significant training in the area. There’s too much to lose to gamble on the market. It is very telling when you say, treat it like a gambling house and it will act like one. I have taken the warning to heart. Thank you for this clear cut and sensible warning.
Hi Kelly and thanks for the comment. It wasn’t my intention to put you off investing entirely. You will be leaving money on the table if you don’t find your way to investing at some stage. There are ways to invest responsibly and manage risk carefully. Maybe, just maybe I could encourage you to take another look. Here is an article that will help you start. Keep reading and keep studying. Best regards, Andy
It’s indeed investing horror story and it’s good to find out about what you want to invest in first to avoid such bad experiences like that couple who lost $321,000 trading on margin. If they had understood what they were doing they could have at least avoid such horror. I used to gamble but I stopped because it was always a horrible experience. Well, thank you for the article it’s really great.
Hi and thanks for your comment. I appreciate your feedback. Best regards, Andy
One can indeed learn from other people’s mistakes, so thank you for this very helpful post and all the lessons we can learn. We bought a house in Italy, just at the time that the euro was introduced as the new common EU currency. Prices were still very unstable, so we paid far too much. House prices tumbled badly after 2008, and today we are still in a position that the house is only valued at around 30% of what it cost us.
So one can argue that we have lost a lot, which is the case. But on the other hand, if we had been paying rent for 17 years, we will have nothing to show for it.
Thankfully I have not suffered losses on the stock exchange. Great advise not to follow the herd.
Hi and thanks for sharing your story. I’m sure there are many stories of investments that went bad around the time that European currencies switched to the Euro. I remember hearing from friends in the Netherlands how prices in Euros often ended up close to the numerical equivalents of what they had been used to paying in Guilders even though the exchange was supposed to happen at around 2.2 Guilders to 1 Euro at the time. I think it is a common experience when there is any change in currency. Best regards, Andy
Well, let me just say that I have had my fair share already and now I am perfectly aware that Mr Market does not care about my situation. Me and my partner only survived because we kept our feelings out of the whole process. We invested money with this other company/group called “my coin”.
Other people were doing well with it so we decided to put in all the money we had, hoping to get our money back including the 150% profit they promised. We even wanted to borrow money but thank God we didn’t. People just stopped buying and we could not sell and the app just crashed. Just like that.
I remember there is a man who actually died because of stress after he borrowed money to invest with this group.
Hi and thank you for sharing your unfortunate experience. I think in the cryptocurrency domain there are many horror stories like this as there are just so many scams and failed projects around. At least you are lucky you didn’t borrow to invest more with them. Thanks again for sharing and wishing you both the best of luck, Andy
It is very easy to make a bad investment these days. Nothing seems to be a real safe bet.
Fortunately, I have not had a “horror” experience with investing, and I pray that I never do. So here’s what I have to say on the topic of investing…
Investing is the exact same as sitting at a poker table with a stack of chips. It’s gambling.. Do NOT invest more than you can AFFORD TO LOSE. You WILL NOT win with investing every time unless you have some really good (probably illegal) advice. Be smart with what you invest in.
And a lot of the times, following the crowd with investing will not end well for you. Be smart.
Hi and thanks for the comment. I think unfortunately what you say is very true. The way many people invest most usually does not result in superior returns or even returns that match market performance and there are many reasons for that. Some are fundamental to the way markets value companies, others are technical relating to the way price moves follow patterns and others are psychological and emotional in the way investors react. But the reality is that to secure some kind of financial future we have to come to terms with managing money and investing is a part of that. So indeed, best to invest smartly. Best regards, Andy
This reminds me of the time my partner invested in a company that he trusted, and he also knew the man. Everything was going smooth and he did get his profits here and there.
It turned out all of it was a lie. He lost a lot of money and so did many people. The owner was not truthful and scammed them all.
So, that became his investment horror story. It even was for me. Now we are both cautious. Whether it’s online or offline investments are scary.
Thanks for informing people.
Hi and thanks for sharing your experience. I have also lost a lot of money investing along with other friends in a so-called business venture of someone I know and trusted. He made a wildly reckless move and we all lost everything. I think it is a very common experience. Thanks again and better luck to us all. Best regards, Andy