Thursday, November 07, 2013

Asiansons, Blumont, Liongold

My worst stock investment ever was Sino-Environment.

Once the darling of ALL stock analysts and experts, it suddenly ran into accounting scandals (fraud?), and became part of another company subsequently. My initial investment of $3000 became...$15 :( I still have a few shares of the new company, but it is worth so little that there isn't any point trying to sell it. Instead, it remains a reminder to me forever of the need to be wiser in stock-picking and to avoid the bandwagon. 

Looking at the recent bloodletting caused by Asiansons, Blumont and Liongold, I was reminded of this experience again. For all the books and courses on investments we go through, it is difficult to resist the euphoria of market darlings, especially if the early investors made temptingly huge profits. But my dear fellow retail investors, make no mistake about it. We are always the naive ones left holding the ball when the music has stopped. 

My only consolation is, the money was mine to lose. It was sore, but at least the damage was controlled.

It was a shock to know that many people suffered crushing losses because of they used leverage to increase the number of shares they could purchase, and now that the stocks are worth so little, they are hard pressed to cough up cash to pay for them. Sometimes I think that leverage is one of the worst inventions in investment, especially in the hands of amateurs.

In the wake of this maelstrom, some have called for official regulation to protect the retail investor. Though as responsible adults we have always been reminded of the classic "caveat emptor" principle, the truth is we often don't even know what we do not know. Why not ban leverage/margin trading altogether? Why should people be given the chance to trade with money they do not have? 

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