My 1st Million At 33 – yes, you can do it too

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  • I am glad that I lost 40% in my first investing year

    Posted by Frugal on June 30th, 2006

    When I just started investing in 1998, I started out by day trading stocks. I didn’t have much. Majority of my investing capital came from my parents. I had about $30,000 which was also the majority of my entire networth. Life was in the fast lane, day trading stocks in and out.

    Since day trading relies on making money on a very small percentage spread, I splitted my $30,000 to roughly only two transactions, each transaction worthed about $15,000 so that even on a 0.5% gain, I could net about $75 – about $25 round-trip commission = $50, a decent profit for me. If I was able to day trade two stocks in two transactions successfully, that would be $50 x 2 = $100. I figured in the most optimal case, $100 per day x 52 weeks x 5 days = $26,000 annual profit. That would be a really decent gain per year.

    But it was obviously not that easy. There were days that I could get $100, but there were days that I would lose $100. Overall however, I was making forward progress by small steps. Since my “day trades” were more like days trades every now and then to take advantage of special closing/opening prices, one night I placed a low-ball limit order for next-day morning (like I often did because I couldn’t wake up that early for east coast). The next morning, I woke up with my limit order filled, but just to discover that the stock that I bought had just tanked right through my limit order price. Although I put my limit order at some 3% to 4% lower from previous closing price, the stock tanked some 15% right at the market open. So the stocks that I bought was immediately in red for about 10% loss. I couldn’t close out my trade with a 10% loss, and so, I did what most people do, held on to my losing position. And the stock just kept going lower and lower.

    Eventually, after making several other big mistakes, I closed out at the end of the year with a big 40% loss. Obviously I was quite depressed about how much I had lost. What made it doubly depressing was that I was losing the money that my parents gave me as gifts. That was a substantial amount to me, especially when you compound that amount at some 4% or 5% for maybe 50 to 60 years ahead of me. I sat down long and hard, reviewed all of my mistakes, and tried to learn my trading and investing lessons. My wife asked why I was doing it at all, waking up at 6:00am PST for so many mornings for trading stocks, and had nothing to show for it, but a big hole in the pocket. It was a good question, and I had an uncommon answer.

    My answer was “I prefer to lose 40% now at my twenties, rather than losing 40% at my sixties. If I learn my lessons early, I would not make the same big mistakes much later. Today, I’m managing and investing some $30,000. One day, I will be managing and investing one million dollar. I can afford to lose 40% of $30,000 now, but I won’t be able to afford to lose even 20% of a million dollar.” Yeah, I was in pain from my deep loss. But I was so determined in continuing my stock trading & investing, and I was confident that one day I would be managing a much bigger amount. Since I knew I would be investing for the next 50 years or more, so I was just going to learn how to do it the earlier the better.

    Today, my stock portfolio is not a million yet. But my networth has increased dramatically. I definitely did not expect things to happen this soon. Fortunately, each of my past investing and trading mistakes has continued to help me to become a better investor and keener trader. My big loss of 40% in the first year has made me a much more cautious and knowledgeable investor. I think some of the lessons you can never learn it from books. Those lessons just need to be learned from painful mistakes. I believe that investing and trading are those kinds of lessons. And I continue to learn and re-learn my lessons as a forever student of the markets. My only modest goal is not to be stupid enough to lose some 30% of my networth when I’m least affordable for a big loss, such in my old age and in retirement.


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    12 Responses to “I am glad that I lost 40% in my first investing year”

    1. MattsMoney Says:

      All in all, a lesson learned. It does suck that you lost 40% though, at any point. But it is something you will not forget. I guess I’ve done some learning too, but on a much smaller scale, dealing with investing and the price of. I haven’t dabbled in options yet, heck I haven’t really dabbled in anything, but at least I know what to look out for!

      Thanks,
      Matt

    2. frugal Says:

      There is a saying: “The wise learns from others’ experiences; the average people learns from their own experiences; the dumb never learns.” Try to learn as much as you can from others’ experiences, especially in regards to investing. It will only save you from painful losses. But again, sometimes the best teacher for success is a big failure.

    3. Novice Says:

      I’ve definitely been in the red since the recent correction, and missed out on precious metals rebounding since late June. I am trying to learn, and catch up trends in the market. I guess that’s not necessarily the same as timing tops and bottoms.

    4. John Says:

      I feel similarly about extended unemployment. I’m glad I experienced it during very healthy years. I feel the lessons have stayed with me.

    5. frugal Says:

      Sorry to hear about your extended unemployment. But painful experiences are good teachers, and nothing you learn second-handedly from articles or others can even come close.

    6. traineeinvestor Says:

      Painful, but much better to learn a hard lesson early in life than later when the stakes are higher and you have less time to rebuild your position. I had a similar experience during the 1987 sharemarket crash – fortunately I was only 21 at the time and had very little money to lose in absolute terms.

    7. The Prudent Investor Says:

      Of course it is all a matter of invidual risk aversion but my average holding of shares is more than 4 years. I follow Warren Buffett’s concept of buying value and see it grow. I just had a 30% downturn due to the weakness in PM stocks but I don’t care as it will all be forgotten in a few months. And I have recovered half already.
      I only take profits on derivatives and I have lost most money because I did not have stops in place.

    8. raising4boys.com Says:

      Carnival of Personal Finance #55…

      Welcome to the 55th edition of the Carnival of Personal Finance. Before we jump in, I just want to say a few words. First of all, if you’re new to Raising4Boys, then welcome! This site is a joint venture between my wife and myself (in case you do…

    9. WBL Says:

      Losing is part of winning. Its the attitude towards losing that deferentiates the winners from the losers.

    10. debt Says:

      Re: Your 40% Loss

      I would look at it not as a loss, but as tuition for a lesson learned.

    11. nate Says:

      I read this and I am in the same position … I am 21 years old – in college – put 14000 of my had earned cash into the stock market … recently crashed and I panicked … I sold at ~45% loss so I am down to about 7500 …

      I am pretty depressed but look at it as tuition … I use to be a risk taker but now I am more serious … anyways thanks for the post – it has showed me that bad things can be good if you learn from them

    12. bill free Says:

      Re: 40% loss

      Experience is always your best teacher. That 40% was an investment in your future, a future that apparently looks brighter.