It seems people are finding it a hassle to click the link. For convenience's sake, I'll just reproduce the whole article (modified and shortened version to prevent duplicate content) here:
A few days ago, I came across a report in the New Paper that got me shaking my head.
The report was about how a student lost $700 000 trading in shares during the recent market slump! In the process, he wiped out his dad’s life savings, lost his girlfriend, and possibly also his family’s house!
Imagine $700,000! That's definitely not a small sum we are talking about here. One word - DISASTER!
I find such cases really sad as these cases can be avoided. I hope this story serves as a wake up call to investors/traders who are living dangerously on the edge.
Some important lessons we can glean from this story
1. Never invest money one cannot afford to lose. That is to say, even in the worse case scenario of 100% loss (assuming one doesn’t leverage), there will be minimal disruption and adverse impact to his financial health.
2. In the article, I read that his father gave him his life savings to play shares, and commented to his son that there is no gain without risk. I find this deeply disturbing.
One thing I hate is the phrase ‘play shares’. When it comes to investing or trading, it shouldn’t be treated like a game. This is serious business!
I cannot understand the part about no gain without risk. Yes while I agree that there is risk involved in everything, we should always try to take calculated (not mindless) risk. When I talk about calculated risk, it means that you go in with the odds in your favor. Investment/trading/speculating is all about probabilities. If you can have them on your side, while you will lose on occasions, you will be in still be net positive in the long haul.
This involves hard work. The usual careful evaluation of company, market conditions and market timing among other factors apply. With proper due diligence, it goes a long way to ensuring that you will effectively lower the risk that comes with investing.
3. Speaking about having a investing/trading plan, a system is vitally important. One must know when he should enter and when he should exit. Whether is it to take profit or cut loss, a system with proper screenings in place will tell him when to do that. A system helps the person to think clearly and act accordingly should the market take any unexpected turn.
Can you imagine a general leading an army into war without a systematic plan? That will be suicidal.
4. Invest time and money in education and knowledge. Spend a bit on books. Read and learn as much as you can. It could save you much more in ‘tuition fees’ later.
I’m also an advocate of paper trading. Go test your system first. See if it’s workable. Treat the paper trading like the real thing. Approach it like what you will do in a real situation. Yes, the psychological factor might not be that compelling, as there is nothing to lose, but the experience will help nevertheless.
The key thing is to treat paper trading like the REAL thing! Don’t just throw caution into the wind just because this is merely paper trading. Yes you might actually do well (in fact very well in the case of that student) in a simulation by taking all sorts of high risk gambles, but this is not what we want here.
Much has been written, and I think I shall end here. I’ve friends who have been through such situations before, and it’s definitely not nice. I just hope the student gets back on his feet and treat this as a learning experience. Everyone deserves a second chance.
Extracted from (full version):
http://mypeculiarthoughts.com/finance/mr-market-claimed-yet-another-victim/
Author
