FPC Blog


Why Do People Lose Money on Stocks?

By:


It’s no secret, investing in the stock market can be very lucrative if done right. The problem is there are so many people out there that do it wrong. Why? Because a lot of idiots oversimplify the process. Hate to break it to you, but no, you can’t just put money in and magically get millions out. It’s all about strategy. Making the right investments takes effort and research, but you also have to get the timing right, or you just may miss your mark.

While there are a ton of reasons that people end up losing money in the stock market, there are a few mistakes that will hit you the hardest: Poor Timing, Lack of Patience and Underestimation. These common mistakes have cost people millions, especially the inexperienced fools that believe that anyone can convert $100 into a million overnight.

Poor Timing

Ultimately, the basis of the stock market game is timing. If you can’t get this right, you will fail. You have to be able to “read the room.” If you happen to catch a good stock at a low price, the first thing you need to ask yourself is why is this stock currently so low? There are a few reasons that stock prices can be low. Maybe it’s a new company that can end up being a rising star. Or maybe the stock is in the midst of a downward spiral. This is where the research comes in. Is this company something that will be of importance in the future, or has it’s time come and go? And possibly even more important than the time that you buy in is the time at which you sell. You don’t want to sell too fast or you just may miss out on a sudden turn around, but you also can’t wait too long to sell or else the stocks may plummet. And in some cases, your stock may be holding steady or making small increases, but they may take so long that you would do better to take the loss and make the money back faster with other investments of the remaining money. Regardless, you have to think quickly, yet be wise and make the decision that is in your best logical interest versus getting caught up in how you feel about things.

Lack of Patience

Sadly, there are so many idiots out there looking to make a quick buck that they don’t have the patience to make real millions in the stock market. They buy a stock today and are ready to sell tomorrow because they didn’t see an increase. Fear and greed are the primary psychological motivators behind many transactions on the stock market. So, it’s no surprise that a lot of people get scared and pull out of their investments too early to find out later that this was a million-dollar mistake. The stock market isn’t some rich quick scheme. However, it is a space where you can build real wealth over time. Therefore, if you want to see real gains, it’s worth picking the right stock and holding on to it, especially if you can find a great stock that provides regular dividend earnings as well.

Underestimation

On the flip side and perhaps the most common mistake is underestimating just how low a stock can go. A lot of uninformed idiots think “These stocks can’t go any lower!” Newsflash, it most certainly can and will. If your stock is rapidly trending downward, cut your losses and move on! This is another reason why it is important to do your research beforehand. You have to understand the circumstances around the stock before buying it because it is possible that the stock price will drop some time after you buy it and never rise back again to the price at which you bought it. Even if the stock has done particularly well in the past, the way the world is moving may not permit success for that particular stock in the future. The fact of the matter is that some stocks never rebound. Don’t get stuck riding the stock all the way to the bottom.

All In all, if you want to avoid these mistakes, there are two important trends to remember:

Buy low and Sell high. While it seems simple enough, many people panic with market trends and tend to overreact. There’s no sure way to perfectly time the market, but it helps if you do the research and keep up with current events that could affect the market. Try your best to make wise decisions with your timing and avoid being the idiot that buys long after the bottom and sells long after the top has peaked and dropped.

Secondly, avoid falling into the Sunk Cost Fallacy. This is the idea that if you lose money on a stock, rather than looking forward, people look backwards. Don’t be stupid and hold on to try to wait years for the recovery that’s never going to happen. Instead, put your funds in a different stock that may have a better future outlook from the present time.

At the end of the day, stock markets for the majority of retail investors cater to the emotion in people, but you can’t let your emotions drive your decisions. Instead use this to your advantage to help you make educated predictions and take calculated risks. But, keep in mind that investing in the stock market is just that, a risk. Stock prices don’t always go up and that’s ok. Just be wise and know when to let it go. While the market generally does well over a long time period, timing is everything and will vary over a few days/weeks/months/years. Therefore, you have to do your part and figure out which stocks will be valuable in the time frame that you would like to keep them. Not every stock is meant to be kept for long term investment and not every stock is meant for short term returns. Ultimately, It is up to you to decide what is best for your investment goals. Regardless of what you decide, there is one thing that you should takeaway…avoid the 3 fatal mistakes above and you’re likely to do just fine.

Categories:
Tagged: