A short history of how even smart people lose money investing

I recently wrote and article about the old Turkey, a character from the book Reminiscences of a Stock Operator that was very peculiar but very wise in the way he acted towards the stock markets. Writing that article brought me memories of a story I heard a while back, after I had been involved with crypto and trading for just a couple of months. When people started talking about investments it immediately caught my attention so I listened to it attentively.

The story is very simple and brief, but I need to give you some context first so you can image the full picture and what the story represents. It's the story of a man I will call Waldo.

The story of Waldo

This is Waldo.

Waldo is in his fifties. He is a professor at the computer science course of one of the best universities in the country I live in. He has a doctorate, he teaches and he does research. He did a lot of reading and learning on his areas of interest in computer science during his several years of work and education. He has a wife and two kids, his own car and his own house. Even though he can't be considered rich, we can probably say he's in the top 20% of our country in terms of how much he makes a year. And he's well positioned in society, surrounded by interesting people.

Waldo is a smart person.

This is exactly what a computer science professor thinks about.

One day we were having lunch with a few associates we received at the University and, for whatever reason, they started talking about money. At some point, as it seems inevitable when people are talking about money, someone mentioned stocks. That's when Waldo decided to share a quick personal story with us.

He told us of how he put some money into a stock a few years ago following a tip from a friend. Those stocks were from a very big and famous company in our country that, in his own words, "just wouldn't stop going up." After putting a considerable amount of money on that stock he just forgot about it for a few years and let it run its course.

"It will never stop going up."

It wasn't long before scandals and bad news related to the company came out and the prices plunged. A lot of sh*t happened those years in the country and all economy went bollocks for a while. That period also had the crisis of 2008 that certainly made the situation worse. A few years ago he needed the money and he had to sell the stocks for whatever price they were paying at the time.

At this point you can probably guess what happened. I won't talk about absolute values; it's enough to say that he lost about 80% of his initial investment in just a few years.

"What am I gonna do?"

When I got home I opened up TradingView to take a look at that stock and guess what? He bought near the top and sold near the bottom. The exact opposite of what everyone tells you to do but what inexperienced people seem to do all the time. Had he not sold it yet, he would be quite OK, near break even (the stock ended its bear run a few years ago and started recovering).

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Alright, so what?

So that's the story. As I told you, it's a simple story. I like simple things, they can teach us a lot. This story illustrates a very, very common behavior ordinary people have towards markets.

Waldo, a very smart and well positioned guy in the community did something out of a tip of a friend and that made him lose probably more money than he's ever lost. He didn't read about the subject. He didn't look at a single chart to try to positioned himself better. He just went with the crowds in the idea that "it just won't stop going up."

Notice that it wasn't just anyone, it wasn't an educated person. It wasn't also someone filthy rich, with enough money to wipe his *ss with it that could afford to risk and lose money. It was someone with access to basically all knowledge he could ask for. A hard-working guy, with years of experience , that earned his hard money through years of teaching and researching.

Sadly, this is what people do. It's not the first time and will not be the last. No matter the market, be it stocks, crypto, or whatever comes in the future, people will always show this pattern of behavior. They either don't have time or they don't have the will to learn where they are putting their money into.

Investing might seem easy once you first start with it. Once you break the initial barrier and learn a little, it seems like you found a fountain of money. But it isn't, it's hard. And trading is even harder. You might have great periods where everything is working out for you, but as soon as you lower your guard the market can wipe you out of all you worked hard for. That stresses the recommendation everyone gives for people getting into crypto: don't ever put in money you cannot afford to lose. What if you put some money and, like Waldo, you end up needing it at the worst possible time? Avoid this situation as much as you can.

I'm repeatedly saying "they" and "them" but I can also be included in this list. I did almost the same with crypto, I got in at the worst possible time (so far, at least). Making mistakes is part of being human, but so is learning. This is why I'm doing what I can to learn from my mistakes and avoid them in the future. Sharing with others is another way of learning and of maybe, just maybe, helping someone to make less of these mistakes.

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Thank you for reading this! You can check some of my previous posts at:

• What I learned from the amazing book Reminiscences of a Stock Operator Part 1, Part 2, Part 3
• Capital preservation and the 2%
• Moving Averages (SMA, EMA): How to use and calculate them (spreadsheet and code included

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Disclaimer: This is not financial advice, I write for informational and educational purposes only. This article expresses solely my opinion, make of it what you wish.