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Investing, while potentially rewarding, is fraught with challenges and pitfalls that can leave even the most experienced investor scratching their heads. The landscape of financial markets is complex and unpredictable, and as investors we often make decisions that may seem logical at the time but can lead to costly mistakes. In this survey, we dive into the most common reasons why individuals fail to invest. The stock market is a complex and ever-changing system. Making money in the stock market can be difficult, even for experienced investors.
The lure of big money always attracts investors to the stock markets. However, making money in the stock markets is not that easy. In addition to knowing the basics of investing, it is also necessary to have a good understanding of the market. If not, then you will most likely suffer losses in the market instead of profit.
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Reasons Why You’re Not Making Money In Stock Market
Here’s a look at some common reasons people lose money in the stock market:
1. Investing Based on ‘FREE TIPS’ & Not Doing Proper Research
This is the biggest mistake most people make when they start investing in the stock market. They easily trust tips they hear from a friend, neighbor, colleague, brokerage firm, or whatever financial channel they’ve just been watching. Moreover, most people blindly trust these recommendations, which later turns out to be a big loss of their investment.
Now you can argue with me what is wrong with investing based on tips and suggestions. Your friends or brokers have more experience than you and can certainly help you earn more.
But you’re missing the point. No one cares more about your money than you do. They don’t care if you make money or lose. it’s not their money.
Furthermore, you can easily rule out a broker’s recommendation or advice because there is a conflict of interest here. Brokers will only make money when you trade. They don’t care if you win or lose. They get a brokerage fee if you keep buying or selling. That’s why they always try to give you referrals so you can trade more often. And the more you trade, the more brokerage earnings they earn.
Now let’s go to the suggestions of friends and colleagues. A beginner should understand a few things that no one else will tell him. All your friends will always brag about their profits and returns. This is known as survivorship bias.
None of your investor friends will tell you about their losses and bad investments. It’s sometimes a matter of pride. You may think that your friends or colleagues are experts, but they are not.
The only way to achieve consistent returns from the stock market for ordinary investors is through DIY (Do It Yourself) investing. Always do your due diligence before investing. If you don’t have enough skills, learn! Investing in the stock market is not rocket science. Finding an undervalued stock that can give you good returns is an art that you can develop through reading, practice and patience.
2. Trying to Make Money Quickly
This is the second biggest mistake that people make while investing in the stock market. People are always in a hurry to make money. They always want to become rich quickly. Always want to be like ‘Warren Buffett – Rich and Powerful.
It’s a fact that Warren Buffet made more than 90 percent of his wealth after the age of 50 and accumulated a large sum through his long-term investments for a period of over five decades. Success in the stock market needs time and patience.
But this is not how beginners invest. They enter the market and want to double their money in two months, even though they are not ready to spend any time researching or learning. They select a stock that they hear on a financial news channel that ‘This stock is going to be next Apple/Microsoft’ and they invest heavily in it and pray that their money will double.
This is how a loser in the stock market thinks and loses money in the market. Nonetheless, if they had kept a realistic expectation (12-20% annual returns) from the stock market and patiently done the research, and chosen the right stocks, they could have won too.
3. Sudden Overexposure to Market
This happens many times in the stock market. The average person has accumulated a lot of savings during that time. Then he hears how his neighbor doubled his money by investing in the stock market. He also suddenly becomes interested in the stock market.
He began to think that if his neighbor could earn so much in the stock market, why couldn’t he? He therefore decides to enter the stock market with a huge amount of money that he has saved up over the years of hard work. And here he fails.
The thing is, you can enter the stock market whenever you want; it’s an open market. However, entering the market without preparation is complete folly. Imagine jumping into 20 feet of water without knowing how to swim. First you need to develop the skill. You need to understand the market, learn the art of investing and enter as soon as you are at least somewhat ready, even if you start small.
4. Holding onto Losses while Booking Profits Early
Let’s imagine a scenario. You bought 5 shares. Three of them are doing great while two are weaker. What will you do? Which stocks will you sell first? Are there stocks that are doing great or those that are underperforming?
“Sell the winners and hold on to the losers”. Most novice investors follow this rule. They think it is safe to sell the winning stocks first and book some profits and hold the losing stocks. Losing stocks will thus gain time to recover and return their initial investment.
However, this is the wrong approach. This is where you limit your profit ceiling while increasing your downside risk. In other words, you limit how much profit you can make when you sell your winning shares. You are ready to book a profit of only 20-30% when these stocks can even go up and give you 200-300% returns. However, here you can suffer an even bigger loss because the losing stocks are still in your portfolio.
If you don’t want to lose money in the stock market, then you should take the opposite approach. You should limit your lower level and sell your underperforming “fundamentally weak” stocks if they fail to perform even after allowing enough time. This can be achieved by holding on to your winners and reducing the supply of losers.
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5. Lack of patience
Patience is the key to success in the stock market. However, most people who lose money in the stock market lack patience. Although beginners are often able to find good stocks, they are not able to make good profits from them. Why? Because they have no patience. They can’t even wait 1-2 years and give time for their stocks to rise. They want a quick result.
However, this is not the only problem for such investors. In some situations, when their shares lose 20-30% of their value, they become very impatient and quickly sell their shares. If they just held these stocks for a few years, they could have good returns. Here lack of patience fails their intelligence in picking a good stock.
6. Blindly Following the Crowd.
This is the sixth and most dangerous reason why people lose money in the stock market. BLIND FOLLOWING THE CROWD.
Imagine the scenario. Your neighbor bought a stock that increased its value by 40% in a few days. Then your colleague bought the same stock and the stock has now risen to around 60% appreciation from its original value.
Everyone is talking about this event and it is making a lot of noise in the news. what are you going to do now? Will you also invest in this stock? Do you feel FOMO – fear of missing out?
This is a common scenario in the stock market, especially when a hot new IPO enters the market. If you blindly follow everyone, you will most likely lose money. Everyone has a different investment strategy. You simply cannot know the real strategy of your neighbor or friend.
You can read about the company’s fundamentals, its financials, and find out why it’s in the news so much and worth investing in. After properly researching the company, if you are satisfied, invest only in these stocks. NEVER INVEST BLINDLY FOLLOW THE CROWD.
7.Lack of Knowledge
Sometimes investors mistakenly think that just buy and sell the right stocks and you can always make money. Investors can sometimes have little understanding of how markets work, what drives stock prices and successful investment performance. Additionally, many investors tend to overestimate their ability to beat the market, and as a result take unnecessary risks.
People are often irresistibly drawn to strong performance, even if it is not sustainable. Many investors chase the latest hot sector without fully understanding why or the risks involved.
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How to Make Money in the Stock Market
1: What is a stock?
If you want to make money in the stock market, you need to do your research and make informed decisions. You have to be patient and not get emotional. You also need to diversify your investments. If you follow these tips, you will be well on your way to making money in the stock market.
Here are some more tips on how to make money in the stock market:
- Invest for the long term. The stock market is a long-term investment. Don’t expect to get rich quick.
- Invest in companies you trust. Do your research and invest in companies that you think will do well in the future.
- Rebalance your portfolio regularly. As your investments grow, you’ll need to rebalance your portfolio to make sure it’s still in line with your risk tolerance and investment goals.
- Don’t panic sale. When the market experiences a decline, it is tempting to sell your shares. Do not do it! The market always recovers eventually.
By following these tips, you can increase your chances of making money in the stock market.
What Should You Invest In Instead?
- If you are still determined to invest your money, the stock market can offer you decent returns
- Combined with compounding, reinvesting profits and some tax sheltering, you can make some decent money
- The S&P 500 index has earned approximately 8% annually since its inception
- You can invest in a passively managed index fund that will hold a basket of stocks for your particular benchmark
- These types of funds come with a very low MER, usually around 0.3% if you buy them online
- This is not an active trading strategy, it is a “hold forever” strategy.
- If you are prepared to do this, you may have to suffer for decades, it is not for the faint hearted
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FAQs
Why am I not making any money in stocks?
It’s important to diversify your investments when you’re investing in the stock market. This means investing in a variety of different stocks. This will help to reduce your risk if one stock goes down. Most people don’t diversify their investments, which is another reason why they lose money in the stock market.
Why do 90% of people lose money in the stock market?
Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes.
Why do most people fail in stock market?
If lack of knowledge is the main reason most traders fail, then psychology comes in a close second. A trader’s attitude or psychology determines not only how they approach their trading but also how they will approach the stock market.
Will I ever make money in the stock market?
Yes, you can earn money from stocks and be awarded a lifetime of prosperity, but potential investors walk a gauntlet of economic, structural, and psychological obstacles.
