We’ve asked several people to share their financial horror stories with us with the idea that we can learn from their mistakes. Today we have the opportunity to get to know Tony, an accountant with a passion for personal finance. He started the blog, Budget Chew, to document what he has been doing in his personal finance life and hopes his experiences can be useful to others.
The biggest mistake I made was when I invested in the stock market. When I invest in the stock market, my tendency is to look for short-term gains.
About four to five years ago, I was making a very good profit on a specific stock. I was able to follow the pattern and keep profiting for months. One day, I got carried away and started using margin loans to increase my buying power and therefore increase my profit. Back then, I was so confident that I thought using a margin loan was a no-brainer: make a quick profit and pay back the money.
I was wrong. After I bought the stock, it started declining. Since I didn’t go all out in the beginning, I was able to buy some more shares at a lower price. This kept going until I didn’t have any more money to purchase shares.
The value kept going down and on top of that, I had to pay margin interest. It was painful. I’d wiped out all my earlier gains and had to pay interest. I waited quite a bit until I finally decided I just wanted to be break-even. I was able to exit and get back to zero profit.
I wouldn’t use margin. It is a bad idea. No one can predict the stock price. I could have saved the earlier gains and walk away.
Yes. Lesson learned. I was lucky my initial capital was not gone. Today, I still trade in the stock market, but I don’t use the margin loan any longer.
That one day, everything will be much more expensive.
Don’t start investing using margin loans or cash advances from credit cards.
Thanks to Jesse for sharing that financial horror story with us today. It’s never fun to go through a financial crisis, but it’s always great when we can learn from our (and others’) mistakes. If you’d like to connect further with Jesse, you can do so by visiting his website, budgetchew.com, or following him on Facebook.
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