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But thousands reasoned that it was the buying opportunity of the year. They used every penny they had to buy more at these "fire-sale" bargain prices, then watched the price fall to under $24.

Investors who hung onto Sun Microsystems, JDS Uniphase, Lucent Technologies, and the hundreds of internet companies that crashed, lost 90% of their money. Many of them had taken huge loans on their homes to take advantage of this chance of a lifetime opportunity to buy stocks that they "couldn't lose on". And Enron? Same thing, people were buying more on the way down.

A 42 year old Connecticut man watched his $70,000 turn into $1,200,000 as his stock in CMGI soared from $3.50 a share in 1998, up to $330 in early 2000. By January of 2001 it was back down to $2.90! And what did this genius do? Bought more, really. Today CMGI trades for about 60 cents.

Many who sold near the market top in 2000, and then bought shares in stocks which have since collapsed, have had to pay huge capital gains taxes or the alternative minimum tax even though their investments were eventually wiped out.

The same thing happened to thousands of people that exercised their company stock options and then watched their stocks drop in the tank. These unfortunate people, after becoming millionaires for a short while, lost everything. But still, they owed the IRS huge amounts of money, sometimes hundreds of thousands of dollars.

You see, the alternative minimum tax says that the excess of market value over the exercise price (how much you made, in theory) is immediate income, like a paycheck, even if you ended up losing money when you finally sold the stock.

The emotional whiplash produced by instant wealth turning to worry and fear, causes anger and depression. The pain of losing money is stronger than the pleasure of making it.
 

Other Stock Market Basics Topics:

1. Stock Market Investing – the Right Way
2. More Stock Marketing Investing
3. How to Pick Winning Stocks
   
4. The Golden Rule of Investing
   
5. Avoid Psychological Traps to Have Successful Investing
   
6. Changes in Stock Values Can Be Big Numbers
   
7. How to Invest Smart
   
8. Stock Advice - Important Selling Rules
   
9. Poor Stock Buying Decisions
10. Market Indicators
11. Stock Market Cycles
12. When a bear stock market may not be a bear market
13. Stock Index Futures
14. Four Things that Affect Stock Valuation
15. What is a P/E ratio?
16. Value Investing
17. Cheap Stocks
18. What is a Financial Statement?
19. Analyzing Financial Statements
20. Stock Market Tip - Red Flags to Look For When Investing?
21. The Annual Report – How to Read
22. Stock Market Analysts – Stock Market Advice and Tips

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