Never Lose Money In The Stock Market

Running of the bulls

Running of the bullsAs a small investor with less than a couple of million dollars in the market, you should not be losing money. There’s no reason for people to lose money yet time and time again, I see exactly that. Investors have every tool to make good investment decisions, but they still buy a stock when it’s high and sell it when it’s low. Why does this happen? How can you make money instead of losing it? I will answer those questions and I’ll tell you why there’s no acceptable excuse to lose money in the stock market.

I’m going to continue referring to the stock market, but the same thing happens in the bond, mutual fund, option or any other securities market.

Why People Lose Money


Number one – people don’t care or they’re too lazy to do some quality research. Who doesn’t want to get rich quick? It’s a dream that many people have but few will ever experience. Investors want to buy some inexpensive stock they haven’t done any research on and watch that stock appreciate exponentially. This strategy produces positive results at a slightly better probability than the lottery.


If you’re investment strategy is not working, CHANGE your strategy. It’s unbelievable how often people continue to make the same bad decisions as though they have amnesia. If you purchase a worthless penny stock and lose most, if not all of your principle, DON’T make that same mistake again. When a lab rat gets shocked multiple times for a certain action, the action is changed as the end result forces different behavior.

On the other hand, of you’ve found a strategy that works, stick to it. Don’t let one or two unsuccessful trades cause you to second guess a fundamentally sound method. My trades are successful approximately 78% of the time. Its impossible to win 100% of the time, but the sum of your gains should always be greater than the losses.


This is probably the hardest obstacle to overcome.  Do what ever you can to prevent emotions from dictating your decisions. I know this can be difficult and most of you think it’s impossible, but it can be done. To help take the emotion out of trading, set up orders (stop, limit, trailing, etc.) that will automatically buy or sell based on prices you have predetermined. Nothing is harder than selling a stock when you’ve lost money. However, selling it once it crosses below a support point and continues its downward move can prevent you from losing even more money.

To further reduce your emotions, don’t watch your portfolio all day. Set up your bracket/advanced orders to execute automatically and let the system do what is was designed to do.

Why you should never lose money

You can make money when the market is up, down or flat. All of the possible outcomes are covered so you have no excuses.  Claiming that, “the S&P 500 was down 8% last year, so my 4% loss wasn’t too bad”, isn’t sufficient.  If the market is trending downward and none of the signs point to a recovery, you can make money several ways – shorting, inverse exchange traded funds, put options and many more investments products designed to appreciate when the market declines.

Also, when you’re not investing with millions, you can enter and exit a position fairly easily. Your buying and selling pressure will hardly affect the market price of any security. The larger your account, the more difficult diversification becomes. Owning 1000 or even 10000 shares is not nearly as risky or monumental as owning 12% of a publicly traded company.

What do I do


Since 2004, I have not had an unprofitable year in the stock market and that includes the crash of 2008.  At times, my gains have been in the single digits, but to counter that, I’ve exceeded 100% multiple times. That kind of success fuels my financial swagger.  I know it may sound ridiculous, but confidence is just as important in investing as it is in any other aspect of life, whether it’s sports, business, relationships…you name it.  I use a lot of data to help me decide when to buy and sell, but I’ve also learned to use my instincts. The more confident you are in your decisions, the more likely you are to be correct.

External Data

Listen to what’s going on around you. Consciously or subconsciously you cannot avoid soaking in external stimuli. The market, in a large part, is dictated by emotions, which are evident everywhere – TV, radio, social media, friends, etc. If you can learn to pick up on consumer sentiment and use this to help predict the direction that economy is heading, you will have a huge advantage.  As people say, the trend is your friend.

Keep It Simple

Finally, stick to a proven strategy and trade a handful of stocks that you’re familiar with. So often, I see people with 40 – 50 positions in their portfolios.  What’s the point?  If you’re that worried about diversification, buy a mutual fund or an ETF.  Entirely too much work goes into the management of a portfolio that size.  I stick to 5 – 10 stocks that I am very familiar with.  I know exactly where the support and resistance points are, when earnings will be announced, what products are in the pipelines and much more pertinent information.

I will save the subject of charts for a future post.  I only use 4 – 5 technicals and three different time periods.  I believe that the technicals I use predict a very clear direction for the time frame I feel comfortable trading in.

Discovering what strategy works takes time and mistakes will be made along the way. There were a few years prior to 2004, in which I ended the year in the red.  However, if you learn from your mistakes and develop your own level of confidence, there is no reason why you cannot make money in the markets every year.

Looking for more on how to get started in the stock market? Check out these great articles

How to Get Started if you Want to Invest in the Stock Market
3 Things Not to Overlook as You Start Investing in the Stock Market
What You Need To Know About Stock Splits And Dividends

Readers: Who has developed a strategy that consistently works well for them? Who continues to feel the pain of the markets’ so called “bad luck”? Have you caught on to any of your bad practices after reading this?