How You Can Lose Money in the Stock Market



Hopeless Man Looking At Loss

Investing in the stock market may be very rewarding financially but if you're not cautious it may cost you your life savings too.  It is a high yield high risk type of investment. This means that the return on your investment can be very high but the risk of you losing your money is also high.  It is very important for anyone who intends to invest in the stock market to understand this. 

Here are common ways to lose money in the stock market.

1.    Company gets bankrupt. 

If the company you are invested in gets bankrupt and has to shutdown, the value of your stock plummets.  The share price of the stock would head down to zero, though not necessarily instantly.  You could lose most of your investment if not all of it. 

This is why it is advisable for an investor especially the newbie and those who cannot monitor the market regularly to select stocks of big and stable companies.      

2.    Stock is sold at a lower or at the same buying price.

The stock market is a very volatile environment.  Stock share prices go up and down all the time due to constant buying and selling.  But who wants to sell their stock at a loss? Definitely no one.  Unfortunately there are lots of instances where an investor must do so.   

When an investor runs out of money or needs money immediately due to a financial emergency he has no choice but to sell his stock even when the price per share is low.  When a company is not earning, not growing or not performing as expected, there will be more selling than buying of its stock resulting to drop in its share price.  Unless an investor has a long term horizon, has strong belief and conviction that company the will recover and perform very well in the future, the investor sells the stock to stop further losses. Bad economy affects the prices of stocks too, may it be local, regional or global.  Disturbing news surely makes people worry or panic results to a plunge in stock prices.  Investors again try to cut losses, by dumping their stocks.

If shares of a stock are sold at the same buying price, investors also lose from transaction fees such as broker commission, value added tax, PSE transaction fee and SCCP fee.  An additional sales tax is charged when selling.

3.    Stock is not appreciating. 

When the stock’s value is not appreciating, your money is not growing.  It will be losing its value due to inflation.  Prices of commodities are rising so what your money can buy now may not be enough to buy the same items in the future.   However, if you see a promising future for the company and are willing to wait then things could work out for you.  Also if cash dividends are paid out often, then keeping the stock might still be a good move.

There’s no doubt that investing in the stock market is very risky.  Stories of people who were traumatized from losing their money are heard often.  Many even swear never to touch stocks again.  However if you are well informed, are in for the long haul and believe that you can ride the ups and downs of the market then there’s nothing to worry about, this type of investment instrument is perfect for you.  Besides, despite all the market crashes and recessions, history shows that investing in stocks is still the best and easiest way to accumulate wealth and secure ones financial future.  Who doesn’t know Warren Buffet?  ^_^

How to Grow Your Thousands to Millions Without Doing Anything

Do you know how much your Php10, 000 would be worth now if 10 years ago you’ve decided to invest this small amount in the Philippine stock market?  If you’re that smart one, it might now be worth millions! 

Below is a list of some blue chip stocks listed in the Philippine stock exchange with their corresponding price per share taken on the 1^st week of January for both 2001 and 2011.  In this 10 year period, big changes in the stock share prices are apparent.

PX is the best performer with a whopping 11619% gain.  Its share price multiplied more than 117 times!  If you bought Php10, 000 worth of PX shares on January 2001 and forgot about it for 10 years, it would now be worth more than Php1, 170,000!  What’s cooler than that?  If your investment were Php100, 000, you have just earned more than Php11, 170,000!  You’re a now a multi-millionaire!

As of August 03, 2011, PX share price is at 22.55.  So if you’ve waited for another few months, you’re Php10, 000 is now worth more than 1.67 million pesos!

The other 3 stocks performed well too.   JFC share price lifted more than 9 times, ALI increased almost 4 times and BPI more than doubled.

Php100, 000 bought on BPI shares would be worth more than Php200, 000.  It is the least performer in the list yet without a doubt it has outperformed any savings and time deposit account offered by any bank in the country.  That's cash and stock dividends not yet included.  I’m sure the cash dividend is significant considering that BPI regularly pays out cash dividends.

The 4 stocks above are not the only blue chip stocks listed in the Philippine stock exchange, there a lot of others to choose from.   I think the share price of most if not all of them has appreciated significantly.  However, it is important to note that past performance is not a guarantee of future performance.  There are risks in investing in the stock market as with other form of investments.  Knowledge is the best defense against risk.  For newbie investors like me, investing for the long term say more than 5 years in big and stable companies is wise.

I’ve been investing in the Philippine stock market for a few months now and my investment has appreciated almost 20% and still growing!  I’m very happy about it.  Who knows what would happen to my investment in the next 10 years.  However, with things starting to change in our country, I’m very hopeful.  ^_^

To learn how to start investing in the Philippine stock market, click here.