How To Lose Money In The Stock Market

I bought my first stock approximately 2 months ago and it caused me no small amount of concern and trepidation. I wanted to get into the market, and for better or worse, the world runs on gasoline, so I bought 1200 shares of New Source Energy Partners (NSLP). Before oil got cheap a while ago, they were trading at $22, but I bought these shares for a mere 57 cents each. If someday they returned to their former heights, I would have profited handsomely.

The price fluctuated, but I wasn’t worried, I knew this was a long shot. On September 9th, NSLP was removed from the New York Stock Exchange. Overnight, my 1200 shares became worthless. I didn’t even know de-listing could happen (obviously I do now) so this was a shock.

Days later, once everything shook out, NSLP ended up on the Over The Counter markets, you may have heard about these Pink Sheets on “The Wolf Of Wall Street.” The shares floated around the 10 cent mark for a few weeks. I refused to sell because I was trying to follow Warren Buffett’s Rule #1: Never lose money.

But the analysts kept lowering their ratings on NSLP, from buy, to hold, to underperforming, to sell. The company themselves stopped paying dividends because they foresaw funding issues in the immediate future. Today, I read that one firm lowered their rating to “strong sell” and I thought, maybe I should cut my losses and get out before they declare bankruptcy.

I sold my 1200 shares at 35 cents each and lost approximately $260 doing so, which was a better result than losing it all.

The important thing is that I learned a few important lessons:

  1. I was speculating, not investing, I didn’t do enough research beforehand
  2. An inexpensive security does not necessarily deserve to increase in value
  3. Once investor confidence is lost, it is very hard to regain
How To Lose Money In The Stock Market

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