How to Lose $5,000 Fast in the Stock Market

Classic Mistakes That Burn Through Your Cash

Marcus Padley | 25 October 2024 | Education Corner

On the broking desk some years ago, it must have been a slow day. One of my colleagues asked the question, “What’s the best way to lose $5,000 in the stock market?” You might be interested in the many replies. Here are some of the more sensible ones:

• Start with $10,000.
• Try to make $5,000 quickly.
• Trade Forex from the comfort of your own kitchen.
• Trade CFDs without understanding CFDs.
• Trade a lot.
• Trade with confidence.
• Trade intraday.
• Trade on ‘inside information’.
• Buy stocks that fall.
• Back your brother-in-law’s tip.
• Set and Forget (emphasis on ‘forget’).
• Buy a stock that is up 20% on the day.
• Buy a stock that is down 20% on the day.
• Don’t take any losses.
• Don’t take any profits.

And finally, this old chestnut - Pay for a $5,000 course called “Learn how to trade and make money like a Pro!”. That’s the instant way to lose $5,000 in the stock market. Let’s focus on that a minute.

The Reality of Trading Courses

There are a lot of ways to receive a share trading education these days, so many places to put in your credit card number and receive instant share market gratification. The bar for successful stock market teachers, it seems, is a lot lower than the bar for successful stock market traders, and for the uninitiated, it is a minefield of heroes and charlatans. So to guide you on your way, I have put together a list of things you might like to consider before forking out for guaranteed trading success:

• Trading success cannot be “delivered”: Trading success cannot be packaged, achieved with a credit card, or achieved in quick time. You may think you are buying a solution, but you are not. You are buying an introduction to a lot of work.
• Without purpose, you won’t last as a trader: It is like joining a gym. You’ll likely try it for a month and stop. Enter the trading marathon without enthusiasm, interest, passion, and a purpose, and you will join the many ranks of people who have wasted their money and time. You need intention, and that means having a very specific goal to inspire you. Without a goal, a genuine long-term purpose, can you truly make trading shares a part of your life?
• You need risk capital: To make that clear, you need capital you can risk. Come to the trading game out of financial necessity, with capital you can’t afford to risk, and your ‘loss aversion’ will doom you to failure. Trading longevity favours the rich. They are the only ones that will last long enough to learn; they are the only ones with "patience", because they can afford it, not because they have it.
• Most people expect to get rich quickly: It’s a guaranteed way to get poor quick. Trading methods are most often about exploiting a small edge over a long period of time. That takes time, maturity, discipline, structure, and patience. Do you have that?
• Hidden agendas in courses: Some courses have a hidden agenda. Selling you a software package, selling you a data feed, up-selling you to another product, or snagging you as a customer of their or someone else's trading platform (they get a clip of every trade you do). This alter purpose is why there are so many “Free” seminars. They’re a forum for hot leads, and that’s how they see you. Nothing is free. I once went to an "Education Seminar" that cost $2,000 for a weekend. All it did was introduce you to a CFD provider’s platform, dismiss fundamental research in the first hour, and then go on to teach you "The only two candles you need to know" to trade CFDs successfully. What they didn't disclose was that this newsletter was, at its peak, earning $400,000 a month from the CFD provider on clips on all the CFD trades executed by its "students" using the platform, forever after.
• Higher cost doesn’t mean better quality: The better the marketing, the higher the price. The bigger the reputation, the profile, and the number of goals they kicked, the bigger the price. But most prices are dictated by the size of the balls of the people selling it to you, not the quality, integrity, or effectiveness of the product. Check what you get.
• Avoid classroom-style courses: Many courses take an extraordinarily long time to cover basic principles, principles that could be read in a book in half the time. Avoid the “Classroom”. Someone will hold you up with “I can’t get my PC to turn on”, “I can’t get the software to load” or “How do I make the arrows green”. You don’t need to involve yourself with the other nuff nuffs.
• Learn to trade, not just technical analysis: There is a huge difference between “Learning to Trade” and “Technical Analysis”. Many courses sell technical analysis, which is not necessarily what you need as an introduction. You need to learn to trade. It’s very different. Anyone can and does teach charts. That's not investment. That's charts.

Questions to Consider Before You Sign Up

• What am I buying? What’s the experience? Is it mentoring with a human, or am I just buying 20 PDFs dressed up as a course?
• Can I cancel easily? Some very well-known educators don’t have a simple way to cancel. Check first. They say you can cancel, but can you? If you can’t cancel on the website with a click but instead have to send an email or ring a US Toll-Free number to cancel, don’t sign up. The ability to cancel is a reflection of integrity. And the lack of it is a reflection of the lack of it.
• What will I get? Anything physical, anything valuable, anything personal, anything more than words.
• What is their motive? To get me trading and paying fees on their platform, to get me as a subscriber, to get my money, or to actually educate me.
• Who are the people behind it? I need names and faces and addresses in Australia. Not an unlicensed faceless entity with an address I can’t find. Deliberately hiding the personalities behind and physical offices of a product is a sign, a sign they have irate customers.
• Could I read it in a book? If so, read the book. You don’t have to pay to have someone read the book for you.
• Am I really interested? Do I really have the time? Do I have any passion? Or am I just trying to solve my immediate financial ambitions in the laziest way possible by spending money on my credit card?

The Truth About Trading

The question you really need to ask yourself is this: “Do I really want to be stuck in front of a screen trading shares all day, every day?” Because if you want to succeed at trading, that’s what it will take. Some people love the stock market. But they are few and far between and, like the casinos, you only hear about the winners. Most people who buy a stock market solution will quickly find out that learning is working, and, like their gym membership, expires unused at the end of the year. The stock market is a niche sport for devotees. Are you a devotee? Are you really interested? Are you at all passionate? If not, keep your credit card in your pocket and your money in your industry or other retail super fund. There's nothing wrong with that. Of course, when the last organ to pump blood is your brain, the stock market does fill a lot of hours. [dt_gap height="50" /]

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