# Grateful Lessons from Losing $100,000 in Just 48 Hours
Written on
Chapter 1 The Strange Value of $100,000
Losing $100,000 is an odd experience. It feels like a significant amount, especially since it's a six-figure sum, yet in the broader context, it may not be as substantial as it appears. While it could fund a lavish vacation, buy a car, or help reduce a mortgage, it's not quite enough to prompt a life-altering decision, like quitting your job to relocate to Bali. Nevertheless, the impact of losing that money was profound. The insights I gained from this experience, however, are worth far more than the cash itself.
Does anyone recall the GameStop phenomenon? Yes, I’m referring to the video game retailer that many of us visited as kids, but which has since become obsolete for most of us. In 2021, GameStop captured Wall Street's attention as a group of Reddit investors rallied to inflate its stock price, which surged from $19.94 on January 11 to an astonishing peak of $483 by January 28.
I wish I could say that was the conclusion of the story, but sadly, it isn't. If GameStop was a rocket poised for takeoff, Wall Street acted like the missile that derailed it. As the stock value skyrocketed, trading platforms like Robinhood, eToro, and Webull imposed restrictions on GameStop shares, preventing investors from purchasing them, which led to a rapid drop in the stock price. By February 5, 2021, GameStop shares closed at $53.50.
My investment, which had reached $110,000, plummeted to just under $10,000 by the time I exited. Here are some lessons I hope you can glean from my financial misadventure.
Section 1.1 Understanding the Uniqueness of GameStop
What transpired with GameStop was an extraordinary occurrence. Stock prices shouldn't behave like that; it was speculative at best. You would have had better luck at a casino than betting on such unpredictable movements. I recognized that selling at the peak would have been transformative. However, the enticing thought of potentially doubling my money made it hard to pull the trigger.
This exemplifies the gambling mentality — knowing when to fold is crucial.
"The only way to win in a Las Vegas casino is to exit as soon as you enter." — Morgan Housel in The Psychology of Money
Greed can drive us to take unnecessary risks. While many profited from GameStop, countless others suffered substantial losses.
Section 1.2 The Hype and Reality of Stock Trading
Back in 2021, Reddit was a bizarre place. GameStop was trending, and many who had never invested before spoke of it as if they were seasoned experts. But the truth was, none of them understood the market dynamics at play.
Some were motivated by the desire to disrupt Wall Street, but most were drawn in by the prospect of quick profits. When hype reaches a certain level, it can create a compelling narrative that’s hard to resist.
"If GameStop hits $2,000 a share, I’ll be financially free! Look at these strangers online who are convinced it will happen! I should buy in at $400; it’s practically a steal!"
This was the mindset that led many to purchase shares at inflated prices, only to be left holding stocks that plummeted by nearly 90% as the bubble burst.
Section 1.3 The Risks of Individual Stock Investment
The reality is, most individuals lack the emotional resilience required to manage individual stocks. You may believe you possess the necessary fortitude, but often, it's only when the market turns south that the truth emerges.
You can't assess a captain's skills by their performance in calm waters, just as you can't evaluate an investor's capability based on market highs. The real challenge surfaces during downturns.
Many investors panic when the market dips, trying to salvage their investments by selling at the worst possible moment. It requires remarkable strength to withstand a 40% drop in your retirement fund without acting rashly.
Research indicates that most people struggle with individual stock selection, including professionals whose careers revolve around it. Approximately 90% of actively-managed funds failed to outperform the market over a 15-year span. If experts can’t achieve consistent success, why would you expect to fare better?
Chapter 2 Conclusion: Embrace Investing, Avoid Gambling
I sincerely hope you never have to witness $100,000 slip away from you. Learn from my experiences so that you can avoid similar pitfalls.
This article is intended for informational purposes only and should not be construed as financial advice. Always consult a financial expert before making any financial decisions.
Most viewed this week: The Most Common Financial Advice You'll Ever Hear is Absolute Nonsense
Subscribe to DDIntel Here.
DDIntel highlights noteworthy articles from our main site and popular DDI Medium publication. Check us out for more insightful content from our community.
Follow us on LinkedIn, Twitter, YouTube, and Facebook.