As readers, we often prefer happy endings and success stories. Stories of people making millions out of little money are what inspire us.
It is especially true in the current digital era where the content we get exposed to is driven by its likeability factor. Social media is flooded with happy stories, often far from reality.
While no one wants to know how to lose money, stories of people who have made bad decisions keep us from making those decisions ourselves. There is no market expert who has never made a bad investment or can make an accurate prediction of what asset could give millions in returns, but they lived to tell the tale.
If you read stories of bad outcomes of investment or failed yourself, these could be some of the lessons you would have learnt.
Failure only makes you wiser
Often people choose to never venture into stock market investments because they are afraid to fail. In fact, some spend their whole lives only finding ways to earn a better salary package and yet not invest their existing earnings.
If you never take risks, you will end up earning the negligible interest made on savings accounts that will fail to beat inflation in the long run. In a way, not investing at all will be a failure.
In fact, not preparing to face an uncertain future of financial failure would be a big failure.
Some who have lost money in the stock market also consider it as a fee paid to learn the skill.
Learning why one shouldn't place all their eggs in one basket
Experts always suggest diversifying investments and save for your retirement days. The famous thumb rule says invest X% in stocks, wherein X is 120 minus your age. The rest can be parked in real estate, gold, government schemes, or more complex investment vehicles and some in your regular savings bank account.
Diversification is key to reduce your risks of low returns or even losses because stock markets often move on factors not directly connected to the investment you make in and sometimes the damage spills even into what you would have considered safe.
For example, the coronavirus pandemic had nothing to do with any particular investment vehicle but it brought intense volatility in the markets and ultimately pusged savings account interest rates to multi-year lows.
Don't let emotions affect your financial decisions
In a 2010 interview on CNBC, ace investor Warren Buffett said the dumbest stock he ever bought was the company he currently is the chairman and CEO of-Berkshire Hathaway. Buffett invested in the company in 1962 when it was a failing textile company as he thought he would make a profit when more mills closed.
The firm later tired to chisel him out of more money, which caused a spiteful Buffett to buy a controlling stake in the company and fire the manager. He tried to keep the textile company running for another 20 years, which he says cost him $200 billion.
No good can come from making any financial decision driven by your emotions. Do not invest in a scheme or chit fund recommended to you by a friend or colleague without thoroughly researching the risks involved. Do not buy a luxury product just because you can.
Take calculated risks
A bad decision could deteriorate the value of your portfolio at a much faster pace than an upgrade from a great investment pick. While there will be an element of luck involved, multi-baggers can be found by thorough research.
When a company fails, the story of what lead to its failure can be key to differentiating between a bad and a good stock. It helps you pick up clues on when to exit an investment as staying optimistically invested in a bad investment can do more harm than good.
Studying negative events, like what caused the recession of 2009, can be integral to the analytical process picking a stock or any other investment. A company may have failed due to bad management, new competition, external factors, etc. Reading up on these stories will help you seize opportunities before the market sees its value.