Help! My Investments are down
Let’s have a look at an investor who has lost 76% of his portfolio value during this year.
Table of contents
Overview of the investing situation
In the last few months, the stock market has dropped by 25%. Hence, there are many investors who made huge losses and are very frustrated about their current situation. Especially in these challenging times, it can be tempting to follow hypes. Therefore, it is very important to think through a thorough strategy to combat such losses.
Let’s have a look at an investor who has lost 76% of his portfolio value during this year. While expressing his anger in a Reddit post, he also blames the financial analysts for not conveying the right information.
“I had brought patience with me, as well as know-how and the right spirit. In view of the unspeakable crash, I am now nevertheless on the brink of the abyss. My forward-looking tech portfolio is already scraping -80%, meaning it will take almost a fivefold increase to recoup the losses.
My personal miserable record includes: RK1 (-100%) was “safely” invested in Terra Luna, it couldn’t have gone much sillier Palantir (-71%) Coinbase (-69%) PayPal (-65%) Meta (-46%) Netflix (-66%) BTC (-67%) ETH (-73%)
Any expert would have rightly! declared me absolutely crazy if I had predicted this scenario 9 months ago, a fivefold increase would have been much more likely.
What remains is a catastrophic loss and unlimited rage at everyone who repeats like a mantra that “it is not yet a real crash”.
This Reddit post clearly shows how frustrated the investor is. Even though the investor talks of having “know-how and the right spirit” his tech portfolio nearly crashed by -80%. But how can this happen?
Lack Of Diversification
What exactly is a lack of diversification? Lack of diversification is the result of not mixing different types of investments with different levels of risk. This creates the possibility of significant losses. This is exactly what is described in more detail in our Investment Tip #3: Diversification.
In the post, it should be noted that the different investment forms are only currently hot technology stocks and cryptocurrencies. Thus, not only is there a lack of diversification, but likewise the tendency to buy what’s hot right now. More details on why you should refrain from doing this can be found in our investment fail #4: Buying what’s hot.
No Patience While Investing
History has shown that market crashes can happen from time to time, such as during the 2008 financial crisis (total market loss of -51.9%), the 1929 Great Depression (total market loss of -89%), or the Dotcom Bubble in 2000 (total market loss of -76.8%). In the case of the latter, it took a full 17 years for tech stocks to recover all the losses they suffered during the bursting of the Dotcom Bubble.
From this, we can imperceptibly see that investing requires a fair amount of patience coupled with a long-term mindset. At 9 months, a long term mindset does not seem to be in place yet, or does it? This is described in more detail in our investment tip #2: Think Long-Term.
However, there are several approaches you can take to minimize the risk you take in the future so you don’t make the same mistakes. First, it is important that you think about your goals. For this, you can ask yourself why you are investing in the first place. To find this out you can read our investment tip #1: Find your “Why”.
The next point is about the time period you want to invest. The longer you invest, the more risk you can take. To give you an example of what returns you can expect over the long term: Over the last 100 years, the global stock market has grown an average of 7% a year, adjusted for inflation.
Risk is the next key point. The more return you want to achieve with your investments, the more risk you have to take. Our investor wanted to achieve a multiplication of his portfolio in a very short time. For this, he took a huge risk, which eventually resulted in a book loss of -76%. If you want to read more investment tips, you can do so here.
A big loss at the beginning of your investment career can happen. So don’t worry. Maybe it is better for you to let someone else take care of your investments. You can read everything about our community invest here. If you would like to set up your own investment strategy feel free to reach out to us and book a free consultation here.