If you put money in a savings account, you’re guaranteed to always have more money in the future. With the stock market, however, nothing is guaranteed.
By investing in a stock or fund, you assume a degree of risk. While taking greater risks can yield much greater returns than your simple savings account, you can also lose some, most, or all of your money on a single investment. The point of investing is to not lose money, of course, but by making a bad or careless investment, you could easily find yourself in the red.
Unfortunately, some traders know the risks but still make crazy stock purchases or bets regardless of facts, data, and/or common sense. Case in point: a Montreal day trader known as F.S. Comeau lost an entire inheritance making bad, risky bets on the stock market. With just $250,000 left to his name, the trader could have easily made low-risk investments for his future or simply stop investing.
Instead, he chose to take the rest of his money and recklessly short (bet against) Apple’s ($AAPL) stock when the company reported their quarterly earnings. He also thought it wise to livestream his reaction. What happened next is not for the faint of heart.
Montreal investor F.S. Comeau told reddit users about his plan to make back a lost inheritance.
After losing money on the 2014 oil crash, Brexit, and Hillary-related investments, the trader had $325,000 Canadian left. Instead of paying off loans, making long-term investments, or walking away from the stock market entirely, he opted to bet against Apple. As a self-proclaimed Apple expert who made a lot of money on Apple, the trader claimed iPhone sales would be down 10-15% during the company’s upcoming earnings call. He also pointed out a decline in the tech sector, the cost of an iPhone, and other reasons why the company was headed for certain doom.
The trader stood to gain nearly a million dollars…or lose a lot a more than his life savings.
F.S. Comeau calculated that he would gain $958,100 when (if) Apple earnings tanked and their stock decreased by around 10%. The StockTwits investment community, however, calculated his chances of being right at around 25%. So what happened?
At 4:30 P.M., Apple reported their fourth quarter earnings. Unfortunately for the trader, the company set an iPhone sales record.
After declining sales in the last few quarters, Apple reported 78 million iPhones sold, a new personal best. People still bought the iPhone 7, regardless of the missing headphone jack. Thanks to strong sales of iPhones and other Apple devices, the company’s stock is currently up 3.15% after hours.
F.S. Comeau will likely lose his investment and then some.
Since Apple’s stock rose instead of the trader’s predicted decline, the trader will likely have to pay most or all of his remaining cash. If Apple stock drops by the time his options expire, he could still make money, but the likelihood of that happening is pretty much non-existent.
What can we learn from F.S. Comeau’s mistakes? First, you should never bet your life savings on anything. While you could make more money in the end, you could also lose all of your money, too. This is a no-brainer, but some people (like the aforementioned trader) still don’t abide by this.
You also shouldn’t invest in or trade just one stock. Instead, it’s recommended you should keep a portfolio of several companies, exchange-traded funds, and bonds. If you split your money across numerous securities, some will go up while other will go down, steadily earning you money without cleaning out your account.
Last but not least, one should never bet against Apple. Apple is one of the largest, most profitable companies in the world. Millions of people buy their products without thinking twice, price and functionality be damned. The company proved they could sell tens of millions of iPhones without a much-used feature. Even without Steve Jobs, they’ll be around for decades to come, raking in hundreds of billions in revenue a year.
If you want to see F.S. Comeau’s reaction, watch the replay of his livestream below: