Do I know of anybody who has lost everything in the stock market?

I am very sure that if you talk to a group of people who have engaged with the stock market, you will find that everyone would have lost some money at some point in time.

The likelihood is that half of the group would probably have got richer at the expense of the other half.

But human nature is such that if you ask the group whether they have lost money, and you ask in public, you will find that almost everyone will say they made money.

Do I know of anyone who has lost everything in the stock market?

The likelihood is that you won’t find retail investors among this group as I don’t think any retail investor would have bet all their savings in the stock market.

But do I know of owners of listed companies who have lost everything in the stock market? Yes, because owners tend to have all their net worth invested in the company they founded.

In the Asian economic crisis, many Malaysian owners lost everything. This is partly because they borrow money using their shares as collateral. When the market fell, they started to buy more shares to support the share price so that the banks would ask for more collateral. This worked in “normal times”.

But in a widespread economic crisis, the market fell longer than the owners could have the cash to support the share prices. The result is that many lost everything when the banks forced-sold the shares (when the borrowers could not come up with more collateral).

The moral of the story - the people who lost everything are the owners who borrowed. Those who did not have any debt survived and got over the crisis. So, don’t borrow to invest.

Retail investors lost some money but I have not heard of any retail investor losing all. So, asset allocation and diversification is important even if you don’t borrow to invest.

Even if you are a trader, you would have your stop loss to prevent you from losing all. Of course if you don't have a stop loss, your are an idiot that deserves to lose all.

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The above is from the article https://www.i4value.asia/2020/05/a-fundamental-...