Invest only what you can afford

Warren Buffett has been one of the most successful investors of all time with a net worth of almost US$ 70 billion.

One of his most famous rule in investment “ Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”

As much as we try to protect our capital, there will always be the risk of losing some if not all of our capital.

Case in point: Luckin Coffee.

With strong growth, Luckin sought a listing on Nasdaq and offered its shares at US$17 per share and started trading on 17 May 2019. The stock closed 31 Dec 2019 at US$39.36, representing a 132% growth in share price. So if you invested US$10,000 at its IPO price, your value of investment would have grown to US$23,200 in almost 7 months!

However, as the saying goes, all good things come to an end.

But this was only the teaser as the main item had yet to come. On 2 April 2020, Luckin announced that its board was looking into allegations that senior executives and some employees were fabricating transactions. Key numbers such as sales and certain expenses were fabricated and the company advised investors to disregard financial statements for the nine months ended Sept 30.

If you thought this was as bad as it can be, there’s more.

Remember the US$10,000 that we talked about?

If you still had the position in Luckin, this US$10,000 would be worth US$817 as of Friday’s close of US$1.39, representing a 92% decrease in capital.

The key takeaway would be that in Investment, although we would do our best to protect our original capital, we must be prepared to lose whatever we invest.

Therefore, do your due diligence before investing and only invest what you can afford.

Related posts:

Data Structures are a way of organizing data so that it can be accessed more efficiently depending upon the situation. Data Structures are fundamentals of any programming language around which a…

I have been reading a few articles and annoucements this week as companies publish their plans on how teams will work in the future, whether that is remote working, changes to office layouts, or a…

One of the hobbies that one can pursue is bonding with books. Though it is already said and known to all that books are best friends of any individual when it comes to spend time alone. Books are the…