home > Taxes >

Why People Lose Money In The Stock Market

2010-05-01 02:58
Investing in the stock market can be complicated business. After all, market forces are complex and hard to understand, much less predict. Everyday, there are many people trading on the stock market exchange, and day in day out, there are people losing money and there are people making a killing.

Obviously, everyone wants to be on the winning side. But unfortunately, most people lose their hard earned money when investing in the stock market. There are many reasons why these people lose money. Here are some of the more common reasons:

1) Following the crowd - Some investors just follow blindly because they are unsure of what to do. So they buy stocks based on half-truths and rumors and end up losing a lot of money.

2) Making investments based on emotions - This is a big mistake. Some investors simply do not know when to cut their losses. They let their emotions get the better of them. As a result, they pour more money into the stock market when they should have cut losses and moved on. This is tantamount to gambling, and should be avoided at all cost.

3) Incomplete due diligence - Some investors are just plain lazy. Even with detailed prospectus and documentation lying in front of them, they just refuse to pick them up and digest the information. The outcome is predictable.

4) Lack of trading knowledge - Some investors want to make money, but they want to make fast money. So they take short cuts and refuse to improve on their trading knowledge. Instead, they depend more on hearsay and their luck when it comes to investing.

The sophisticated investor knows how to make money regardless of whether it's a bear or a bull market. Most investors just know how to make money during the bull market. For example, a trader can short sell during a bear market. Short selling is a blanket term used to describe trades that allow the investor to gain while the prices are falling.

Making money from the stock market is not impossible. Many people have done it, and they continue to do it to this day. Some even make a full income trading on the stock market. But from the reasons cited above, you see that to be a successful trader, you need these four qualities:

1) Discernment - Never follow the crowd blindly or believe rumors without investigating.

2) Sound investment philosophy - This is important because your decisions should always be based on your investment philosophy, and not your emotions.

3) Hard work - Complete your due diligence. No one else will work harder than you as it's your own money you are investing.

4) Investment knowledge - You don't have to be a guru but you do need adequate investment knowledge to know what are the investment tools that you can make use of.

Finally, if you have to learn, make small trades but always practice with real money. With real money, you feel the pinch when you lose, and you tend to learn the lessons faster. Learn quick, be savvy, and in time to come, you will profit handsomely from your past investment mistakes.

For , and , please visit our .

related articles

Copyright © 2019-2020 finance, all rights reserved