If you read articles around stock market investment, you would have definitely come across the statement – 90% of the people lose money in the stock market. It is 100% true. The mistake investors make is that they ignore the above warning and assume they fall in the other 10%.
You can definitely fall in the other 10%, but you need to understand why most investors lose money in the stock market. Once you know the reasons, you should ensure you are not doing those things.
So let us directly dive into the reasons why most people lose money in the stock market.
Investing based on a tip – If you are new to stock investing, you will not know where to start. Hence, most people start their investment journey based on investment tips from friends. Sadly, when it comes to investment tips, you will only receive tips of small-cap companies (high risk). When you check the recent performance of such companies, they look phenomenal. Such small-cap stocks get momentum because many other investors have received the same tip. You lose money as the momentum shifts very quickly. If you blindly follow tips, most times, you will burn your fingers.
If you have no clue of the starting point, you can pick the bluechip stocks and simultaneously learn to invest in the stock market. You can also use our platform to create your stock portfolio based on your investment horizon and risk profile.
Want to make quick money – If you wish to make quick money, you should try your luck in a casino, not a stock market. The stock market is not a place to make fast money and try your luck. Yes, people do make quick money, but then such people lose money quickly too. We hope you don’t want to lose money at the start of your investment journey.
People who have invested a significant portion of their investment for years in fixed deposits and were happy with 5 to 7% annual returns come to the stock market to double their money in a few months. You need to understand – even if your money is doubling in 5 years, we are talking of over 14% annual returns. It is much higher than the fixed deposits. If you invest in the stock market to double your money fast, you will mostly end up picking the wrong stocks. Such a mindset makes one invest only in small and mid-cap stocks that are highly volatile.
Holding on to bad investments and selling good ones – If you invest in 10 stocks after carefully selecting them, one or two may give you negative returns, and 3 to 4 may deliver good returns. Not all companies turn bankrupt, nor do all become multi-bagger.
The problem with most investors is – when the stock price goes down, they wait for the price to rise. When the stock price increases, they sell their stocks after a gain of 20 to 40 percent.
If you have selected a fundamentally good stock, you should not book profits too soon. For example, many retail investors would have sold IRCTC in 2018 after getting a 100% gain. Where is the stock today? Similarly, if you have made some bad investment, there is no point in holding on to it. You should acknowledge your mistake and exit with whatever capital is left. Invest the balance in some better stock where the chances of growth are certain.
The right way to invest is – hold on to good stocks forever and sell the bad ones as quickly as you realize.
Lack of patience – Patience is of utmost importance in the stock market. There may come a market condition when the market stays in the bear phase for months. You will not see your investment growing. In fact, you will see your portfolio in red.
Most investors who enter the market lack patience. When the bear phase comes, they tend to lose patience when the stock price goes down by 20 or 30%. They sell their stocks at a loss.
If you have picked the right stock and the whole market is down, you need to have the patience to become successful investors. Understand that the bear market does not continue for very long, just like the bull market does not last forever. There will always be ups and downs in the market. You must have patience when investing in direct equity.
Complicating Stock Investment – We mentioned above that diversification is very important. Many people don’t understand the correct meaning of diversification. In the name of diversification, they invest in 40, 50, or even 100 stocks. Can you even remember all the stocks in your portfolio if you have these many stocks? Most people cannot remember, and they lose money. For example, you read some negative news about a company. Even if you have it, you will ignore it since you don’t remember having it in your portfolio.
Have only those many stocks in your portfolio that you can track regularly. You need not monitor all. For example, if you have invested in 25 stocks, you don’t have to monitor stocks part of NIFTY or SENSEX. Assume ten stocks are part of the index. Your job would be to track the performance and results of 15 stocks. If you have 50 such stocks, there is no way you can track them.
If you take out the above five points from your investment habit, we are sure you will become a successful investor. If you are still unsure about stock investment, you can download our app and start your equity investment.