How to lose money

By DAVID MOON, Moon Capital Management
December 9, 2001

Anyone can tell you how to make money. People do it all the time. On television, in the newspaper, in magazines. At parties. At the barber shop. Almost everywhere you turn, someone will offer advice on which stock to buy or the new hot mutual fund. Investors suffer from a glut of advice on how to make money. But in the last two years, most investors have more experience losing money rather than making it. What people need is a guide to help them lose money. If losing money is a fact of life, how can investors make sure they are doing everything possible to lose money most efficiently?

Look for the next 'big thing'
Don't bother trying to hit doubles and triples. Swing for the fences every time at bat. Keep putting your money in stocks you hope go from 1 to 100.

Trade frequently
This has to work, right? After all, why does the news report the trading volume each day? Ignore taxes, commissions and all of the little nuisances associated with each trade. Your job is to put your money to work ' often.

Ignore taxes
Speaking of taxes ' don't even think about them. If you're paying taxes, you're making money. No one ever went broke taking gains. Sell your winners. Hold onto your losers.

Let taxes be your master
But if you have a significant gain in a single, overpriced stock, never, ever, ever consider selling it. It is better to lose 30 or 40 percent in price decline than to pay 20 percent in taxes. Make tax avoidance the goal of all of your investment decisions.

Listen to your crazy uncle
Every family has him ' the weird uncle with a strange laugh. The one who drives a 22 year-old Ford Fairlane and falls asleep snoring right after dinner. Never mind that he can't keep a job. He is a world of financial advice. When he touts a stock, buy it. If you don't have a crazy uncle, any stranger in an elevator will do.

Ignore the financial mumbo jumbo
Investing is as simple as finding growing, well-run businesses and buying them. Don't get bogged down in tertiary distractions like P/E ratios or balance sheets. Those things are minor details.

Never admit a mistake
This is a sign of weakness. Only losers make mistakes. If you own a widget company that is experiencing a huge market share decline, has an overleveraged balance sheet and has declined from $50 to $10 per share, it can't go any lower. You didn't make a mistake; you simply bought too early.

Wait to get back to even
And don't sell your widget company stock until it gets back to what you paid for it. It will eventually get back to your $50 purchase price. And when it does, you won't have lost any money. Never mind that 6,000 other stocks might have gotten you there faster and with greater certainty.

Don't participate in your company 401(k)
That company match is worthless if you can't spend it now.

Wait for a stock to go up before you buy it
Never buy a stock when it is down. Wait and see if the price begins to go back up before you plunk down any cash.

Only trade with friends
So what if you don't understand why you need a seven-year lock up, tax deferred annuity in your already tax deferred IRA? If your kids play t-ball together, your friend must be offering a good deal. Ignore the fact that your friend has been a vice-president of investment consulting for only two months, after leaving his job selling pagers.

Don't look down
When you are losing money, don't look at your brokerage statements. Pretend it isn't happening. Don't worry about trying to determine if your fortunes are temporary or more long term. If you just ignore the bad news; maybe it will go away.

Procrastinate important decisions
Remember, great investors, like great leaders, are always slow to make a decision. If you have something really important to decide, try not to think about it. Why make a major decision now if you can put it off for a few weeks or months? Or maybe even indefinitely?

Listen to the experts
If someone says it on television or writes it in a newspaper, it must be true.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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