Since 2001, my father has lost in excess of $300,000 in a bull market. How is this possible?

Question

We have been in a bull market since the late '90s right? So how does one lose money in the stock market to the tune of $300,000. Besides an obvious lack of experiments, and perhaps a bit a Vegas I can make it up if I just...............What kind of a moron can lose $300,000 in the stock market?

Answer 1

hmm I just getting back to where I was since 2001 its not that hard it depends on how much he had in there if he had over a million it was easy. Because the Market tanked for two full years and alot of people moved out of equities out of fear during the bull.
Not a moron just a nervous investor that should have seen an advisor.

Answer 2

First of all, you (and your father) are assuming a bull market existed in 2001. It didn't. The cycle has turned to a secular bear market. But, your saying "no way, it's a bull market, the Dow is over 12,400, higher than then top in 2000". Yes, in nominal terms. But in real terms, the Dow is around 10,000 - quite a bit lower than the 2000 top.

Your father bought stocks in 2001 and the Dow was in the low 11,000's high 10,000 range. By Oct. 2002, the Dow dropped to 7200. So, what probably happened is your father assumed that each down move was a "buy opportunity". That how he lost $300k.

As don't be fooled, just because the Dow is at an all time high, doesn't mean that a new bull has formed. There are what are known as bear market rallies. Yes, the Dow is making new nominal highs, but the market internals are not supporting this advance, ie, this advance is not as healthy as people think it is. There is a major bearish divergence between the Dow and other indices with the other indices failing to make new all time highs along with the Dow. Even the MACD is signaling down side strength.

Your father needs to get past the notion "once a bull market, always a bull market". People forget, prices can go down. I'm not saying that your father should dump his stocks now, BUT he needs to be alert and nimble that at the first sign of a breakdown, he needs to move out of his long positions.

Answer 3

He could have shorted stocks. Shorting has unlimited risk without stops and he could have shorted on margin (basically a loan so one can buy more stocks). He could have bought tech which crashed in 2001. Some mutual funds have been down 30% every year. He could have day traded where the buy and sell fees ate him up. Remember the day before the stock market crash that helped spark the Great Depression was a major bull (with RCA at something like $420 a share).

Answer 4

First of all calling your father a moron is a wrong proposition. Anyway let me answer your question. There are one or two reasons. Either he enters at the wrong end of the market. When it stops moving he buys and when it starts moving he sells.
The other which can be more obvious is your father couldn't cash in on high prices because the brokers were not relenting to sell at the highest price where someone even might have shorted the price down to some lower figures where he could make the sale at profit but not a big one. This usually happens in many places where brokers don't cooperate on high prices for reasons only known to them.

Answer 5

> What kind of a moron
Me. When the stock market went slightly down at the beginning of April 2000, I thought it was a buying opportunity, so I bought tech stocks and mutual funds. Every day, even though the price was sliding, I was optimistic -- this can't go on. Two years later, I had lost 80% of what I had put in.

Answer 6

It also depends where he started out. $300,000 isn't a huge loss if he was investing $10 million. However, assuming that he has lost all he has invested, it's probably extremely poor investment strategy. Typical amateur investor mistakes include not diversifying the portfolio, buying penny stocks that then go bankrupt, jumping on the bandwagon for stocks that are already overvalued, and constantly flipping stocks and incurring huge fees. He might even be engaging in high-risk strategies such as shorting stock or investing in derivatives.

Answer 7

If he was poorly diversified or slightly heavy in Enron, Worldcom, etc. I can easily see you one can lose $300,000 since 2001. Some people lost much more.

Answer 8

It seems your father really needs to hire a Financial Advisor.

Top 5 Answerer.

Answer 9

He is probably a drug-addict. Seriously.