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This greed-fear cycle is for real, and has drained bank accounts, delayed retirements, and caused many divorces. I'll give you some recent examples:

A New York couple entered a murder-suicide pact after suffering enormous losses. On a Long Island beach, the man shot his wife and their dog, but survived his suicide attempt. One 29 year old man lost most of his $1,000,000 inheritance in just 2 WEEKS day trading.

Investors bought the NASDAQ tracking stock, called QQQ, at $107 and got a little anxious when it dropped to $90, and then $80.

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.
 

He who gathers money little by little makes it grow
 Proverbs 13:11

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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