I Helped One Friend With Investment Advice Yesterday

And I Loved It Very Much

MR. Molly Maguire
Sep 4, 2018 · 4 min read

I got one of my friends interested in trading and investing.

Yesterday she even pitched me a potential investment in a company she has known for a long time as a customer.

The company has recently gone through huge turmoil and almost went bankrupt. They eventually had to restructure and are now relaunching their brand.

I don’t mention the company here because that’s not the point of this post. I just want to show you my investment process in a bit more detail.

The company now trades at a 99 percent discount compared to their all time high stock price.

So buying this is a no-brainer, right?

Most people seem to think that.


No Free Lunch

They view it as a cheap option.

You just put say 100 bucks in and forget about it.

And in case management gets their shit together and the stock-price pumps back to the all time high?

Congratulations, you just went 100X on your money.

Easy peasy, right?

Well, not exactly. Because there’s no such thing as a free lunch.

Ever.

by Gardie Design & Social Media Marketing on Unsplash

Most people view that huge discount as free money. But especially a troubled company with mediocre management is not likely to turn things around.

There’s a reason this stock lost 99% of its value during the biggest stock boom of the century.

In this particular case, the management had a flawed business model. They were actually giving their customers free money. That is not a sustainable business.

They could turn things around but it’s not going to happen enough to warrant this punt.

I advised my friend to stay away from this company.


Balls Of Steel

Here’s another reason.

A lot of people can buy low.

Buying low is easy, holding is the hard part.

Suppose you buy 100 bucks worth of shares in this company. And immediately after doing this, the price takes another 50% dive.

Trust me, this happens a lot. The markets likes to test your balls of steel.

by Meriç Dağlı on Unsplash

What do you do next?

Most people don’t have the nerves to keep playing this game and would walk away with half of their capital gone.

Others are in even more trouble. They become married to the trade and double down.

Their reasoning is as follows:

‘It was an attractive punt at 0.22, so now it must be twice as attractive at 0.11, right?’

It’s called catching a falling knife.

That’s how you loose your hands, folks.

Losing kills almost everybody.


Playing Air-Guitar In Your Underwear

But what if it goes right?

That’s probably what you’re thinking right now.

‘Hey Molly, what if I buy this stock and it immediately triples?’

You would think you’re a genius and break the world-record playing air-guitar in your underwear.

by Alexandre St-Louis on Unsplash

This happens to the best of us.

But you would also be very temped to sell this bad-boy because you made a healthy profit and you would be scared the market would take it away from you.

That would be a terrible mistake.

Because that’s how you miss out on the big payday you definitely need. And that’s why, in the end, you would never win enough to offset the losses.

Almost nobody has the discipline to ride a 100X all the way.

Investing is hard, I know.


My friend did not buy this stock.

The management is flawed, a credible competitor with deep pockets just showed up and that particular market is not liquid enough.

There are too much problems with this one for now and I would want to see strength first, before I put some cash in this stock.

I’m excited for my friend though.

She’s starting to develop an investment mindset.

And that, my friends, is truly awesome.


Listen here to my audio recording:

MR. Molly Maguire

Written by

Investor. Trader. Writer.

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