The Road to Ruin: A Tale of Stock Market Misfortune

It was the first week of January 2008, and we were still riding the high of Christmas and New Year celebrations. Work was slow, giving me plenty of time to daydream and plot my master plan for the coming year. Having spent enough time in the US to feel financially secure, I had managed to save up $25,000 for my ultimate dream car—a BMW convertible. For me, buying that car was the pinnacle of material success at that time-more like achieving nirvana. But since I was still a few months away from that shiny new ride, my merchant family instincts kicked in: “What should I do with this money just lounging in my bank account? How can I make it work for me until I buy the car?”

So, I called my elder cousin in India for advice.

“Bhaiya, I have about 10 lacs in savings just sitting idle. What do you suggest I do with this money?” I asked.

“Have you ever invested in the stock market before?” he inquired.

“Not really. The only experience I have is with a couple of IPOs I bought and sold for a small profit before moving to the US,” I replied.

“That’s great! Well, I’ve been investing in blue-chip companies that have given me excellent returns over the past few months. I’ve made some quick money with just a few months of investment. If you have the extra money, you can buy these same stocks and sell them when you need the cash. You’ll likely see a decent return in a few months,” he said, enthusiasm dripping from every word.

“That sounds like a solid plan! What should I buy?” I asked, completely out of touch with the Indian stock market.

Cue my dad’s favorite phrase: “vinaash kale vipreet buddhi” (When doom approaches, the mind works perversely). I was about to embody that saying.

While he was still on the phone rattling off a list of promising companies, I logged into my Indian brokerage account and started buying shares like a man possessed. By the time our hour-long call was over, I’d impulsively spent 8 lacs (~$20,000) on stocks shopping spree. That was nearly all of my precious BMW money on the line!

During my shares buying spree, I was blissfully unaware that the world markets were teetering at their peak. I had no inkling that a total collapse of major financial institutions was just a few months away. However, for the next few days, I saw a modest gain and felt pretty pleased with myself.

“He was right! I’m already up 2%. Once I hit 10%, I’ll make a quick exit,” I thought.

How wrong I was! Within weeks, it became evident that something was seriously wrong with the US financial system. Bear Stearns was crumbling, making all investors jittery. But I was too naive to grasp the gravity of the situation. Why would I? I had never witnessed an economic collapse in my entire life. Like many, I believed the stock market only moved in one direction—up! I thought it was just a temporary correction and wasn’t too worried. I decided to wait it out.

Meanwhile, I started pouring the rest of my savings and upcoming paychecks into the US stock market. Talk about timing! No period in recent history could match the awful timing I chose for buying stocks! As I began seeing losses on both fronts, I forced myself to learn about investing. When I discovered derivatives, I thought I had found the holy grail of making money!

“What an easy way to make money! The downside is limited but the upside is unlimited!” I was captivated by the concept of options. I saw endless opportunities to make quick money.

By now, Bear Stearns had failed, and my investments in the Indian market had halved. In a panic, I sold all my holdings in the Indian stock market, pulling out all my money. I was financially devastated.

“What a terrible mistake. If only I could recover my lost money, I’d bid goodbye to investing forever!” I thought.

The only way I saw to recover my losses quickly was through the exponential power of options. I was in a hurry to recover my losses—a typical gambler’s mentality. One of the first lessons in options trading is to practice with paper money or backtest strategies, and another is to cultivate patience. I disregarded both and started playing live with my hard-earned money. I decided to use the funds I pulled from the Indian market to buy Apple and Google call options, betting on an upswing in a market that was days away from total annihilation.

And then it happened!

In the second week of September 2008, news of the Lehman Brothers collapse dominated the headlines. It felt like a financial apocalypse. All my stock options became worthless overnight, and my account, which had been a healthy 25 grand just a few months prior, crashed to zero! The shock was paralyzing. I had just lost my entire savings.

But instead of swearing off the stock market for good, I fell deeper into the classic gambler’s trap. Desperate to recover my lost savings, I took a personal loan, did a balance transfer from my credit cards, and saved every paycheck until I had accumulated another 25 grand. This time, I was more determined than ever to trade, convinced that I could outsmart the market. My brokerage company even granted me active trader status, allowing me to execute and settle multiple trades a day.

However, I was still blind to the bigger picture. It was a clear bear market, but I played as if it were a temporary dip. I kept betting on the upside, driven solely by gut feeling. I bought Google and Apple options again, ignoring the obvious signs that the market was in freefall. As the market continued to tank, I stubbornly bet on an upswing, resulting in a string of losses. To maintain the $25,000 minimum balance required for active trader status, I kept replenishing my account with my paychecks. The markets were devouring my earnings every two weeks.

My biggest blunder was buying near-term call options that expired within a few weeks. The market recovery wasn’t just weeks away—it was months away. Consequently, my near-term options expired worthless, time after time.

In a matter of months, I was down to zero again. But this time, I had racked up a significant debt. To settle the loan, I had to sell my company’s employee stock options grant at the lowest possible price. If only I had known that those very same company grants would be worth half a million dollars just five years later!

The whole ordeal was a dramatic, gut-wrenching lesson in financial humility. It taught me that markets don’t bend to optimism or stubbornness—they follow their own brutal logic.

Having burnt my hands twice in the market, I took a break for a few months. I had no choice—I was flat broke, having torched my paychecks and even sold off my employee stock grants! Over the next few months, I continued educating myself about the stock market and saved up another 25 grand. This time, I believed I was wiser and had a better grasp of the market. With my newfound “wisdom,” I had shifted from a Bull to a Bear and was ready to bet on the downside.

It was March 2009, and the market had bottomed out. But how was I to know? Seeing the market slide for so long had turned me from a Bull to a Bear. I bought several Put options on blue-chip companies with significant price fluctuations during high volatility, hoping they would go down. To my surprise, the market started recovering, and my Put options became worthless in a couple of months.

“Wait, what? I thought I understood the markets now.” I couldn’t believe this had happened to me a third time! I started having sleepless nights.

24/7 Obsession: A Stroll into Currency Markets

By now, I was so consumed by the stock market that I started wondering why they didn’t keep the markets open 24/7. The trading hours from 9:30 a.m. to 4 p.m. were not enough! And no trading on weekends? What a tyranny! Watching the numbers roll on the screen gave me an adrenaline rush that I became addicted to, craving it constantly.

Then I discovered the currency markets, which filled the void left by the stock market’s limited hours because they operated 24/7. My luck with the stock market wasn’t great, so I thought I’d try my hand at currency trading. I was reading news daily about severe fluctuations in major currencies like the Dollar, Euro, and Yen. The volatility seemed like an opportunity to make money. I had learned that large money movements happen during times of high volatility in any market.

So, I applied for an account with a currency trading platform and was up and running within a day. I started trading with a small amount of $2,500, doing hypothetical test runs to validate the money-making potential of the currency market. When my tests seemed promising, I began betting real money. My target was $250 per transaction, whether gain or loss.

My obsession with the financial markets was so intense that I couldn’t leave my laptop alone for a second, not even in the bathroom. I was trading even while on the toilet—I’m not kidding. However, my foray into the currency market lasted only a month, during which I lost the entire $2,500 in my account. That marked the end of my brief and unsuccessful venture into currency trading, never to look back again.

The Last Hurrah: Final Battle with the Markets

I was trapped in a classic gambler’s mindset. Making money wasn’t even on my radar anymore; all I wanted was to recover my losses. So, I dove back into the market. It seemed there was a timing disconnect between me and the markets. The market moved in a sine wave while my thought process followed a cosine wave, lagging by one cycle. I could predict market moves accurately, but my timing was always off!

I was so consumed by the stock market that it started dictating my schedule. Every morning, I woke up at exactly 9:20 a.m., 10 minutes before the market opened, to digest all the market-related news: company quarterly earnings and revenues, pre-market price movements, Bloomberg futures, foreign markets, commodities, etc. The market would open at 9:30 a.m., and I’d watch it for 10-20 minutes before placing my first bet. This time, I was able to make money sporadically with day trading. It felt like I had grown into the market, like I was in a relationship with it.

I set a goal: a $500 gain or loss per day. If I made or lost $500, I was done for the rest of the day. This rule helped, but only for a while. It worked as long as the market was volatile, with severe price fluctuations allowing me to reach my $500 target quickly. However, as the market stabilized and volatility subsided, the fluctuations weren’t enough to meet my target. I started losing money again because day trading is highly effective mostly during high volatility.

When it was all said and done, I was down to zero once more. This time, I had lost all hope of recovering my money. I understood that I had gone too far to ever get back what I’d lost. I was finally done. The golden question that dented my psyche and destroyed my confidence was, “How could I lose money four times in a row? Am I that dumb and stupid? Even a broken clock is right twice a day!”

The only consoling answer to this question was that I got better each time I lost money. The first time, I lost the entire 25 grand within a couple of months, but on my last try, it took me almost a year to lose that amount. There were days when I made more than $5,000 in a single day, and days when I lost more than $10,000 in a single day. But the bottom line was that I was never going to play with derivatives ever again. The day I made this resolution, I went into the bathroom and shaved my head! But little did I know, there was one last event waiting to cement my belief!

The Flash Crash: The Final Straw

May 6th, 2010, is a day forever etched in my memory. This was the day that cemented my belief that I wasn’t meant to make money in the market, and I needed to break free from the vicious cycle of trying to recover my losses. It was time to accept that I had failed and that the money was gone forever.

That day began like any other. I woke up at 9:20 a.m., digested all the relevant news, and placed my first bet at 9:40 a.m., just 10 minutes after the market opened. It was a $2,500 put option bet on Apple. I kept watching it until 11 a.m. when I got a call from my manager.

“Where are you?” he asked.

“I’m home getting ready for work,” I lied, glued to my laptop screen, watching my Apple put options.

“We have a meeting at 12 noon. Remember?” he reminded me.

“Yes, I remember. I’ll be there,” I replied and hung up the phone.

Since I couldn’t leave the options trade unattended due to high market volatility, I decided to sell it, albeit reluctantly.

“I’m even on the price anyway. Let’s sell it and buy it back again after the meeting is over,” I thought.

I got ready, reached work, and attended the meeting on time. When I came back to my desk and checked the options price at 1 p.m., it had gone up to $5,000.

“Fuck! I missed the opportunity to make a $2,500 profit today! All because of that stupid meeting! Why did it have to be today?” I cursed my manager in frustration.

“Never mind. I’ll catch this trade on a dip,” I consoled myself and waited for another opportunity to buy the same options.

But instead of a dip, thirty minutes later, the options went up to $10,000.

“What the fuck! A lost opportunity of making a profit of $7,500 today!” I was furious.

By 2 p.m., the options had surged to $15,000.

“Are you friggin’ kidding me?” I was in utter disbelief. Anxiety gripped me as I realized I had missed a rare opportunity.

Then came the moment I’ll never forget. The markets took a deep dive from 2:20 p.m. onwards. That option price crossed $100,000. The DOW was down by more than 1,000 points. I was numb. I couldn’t believe what had just happened. It was a once-in-a-lifetime opportunity that could have recovered all my money in one shot and brought me redemption! It was almost my annual salary! Although the market recovered before closing, the shock left me panting. I was shivering. I had no choice but to go out for a walk to breathe. I cursed my luck, and no consolation worked. It took me a long time to recover from that shock.

Although I came across similar lost opportunities later with Netflix and Google when options became worth more than $25,000 overnight due to earnings results, the shock wasn’t as severe because by then I was convinced that I could never make money in the stock market. I had abandoned all hopes of ever recovering my money. This pretty much ended my tryst with the stock market, or so I thought.