Why investors lose money in the stock market?
By - IndianMoney.com Research Team 02 January 2016
You want to invest in stocks. You have heard of the great returns you get there. Your friends have got bumper returns by investing in the stock market. You want to get those returns too. You need to understand that though your friend may have made money in the stock market, there are countless investors who have lost a lot of money in the stock market. Do you want to be one of them?
If not, you need to learn these points.
Learn the business of the Company whose stocks you invest
If you invest in stocks of a Company whose business you do not understand, you are sure to lose money. Study the business of the Company. What products they deal in? How they make their money (their business model) and who are the promoters and top management, who run the Company.A Company which sells products which have great demand, or has an excellent management structure, is bound to do well.
You jump out of stocks in a crisis
You have invested your hard earned money in stocks, after doing your research. Unfortunately your spouse has fallen ill and you require money, for the medical emergency. The hospital bill is very high and you are forced to sell your good stocks, as you need the money. Unfortunately for you, the stock markets have also crashed and all your stocks have lost their value.
If you had a family floater health plan or an emergency fund (money stored for an emergency), you would not have had to sell your good stocks, in a lean period. You have lost a golden opportunity to make money from your investment, in the stock market.
You look for hot stock tips
Your friends give you hot stock tips. Your relatives give you hot stock tips. Well…your stock broker gives you hot stock tips.This is the best way for you to lose money in stocks. With due respect, your friends and relatives are not experts on stocks. It’s your hard earned money after all. Why do you want to risk it?
Never take your stock brokers advice at face value. For your stock broker, your needs are not important. His needs are important. Your stock broker earns commission on recommendations and new accounts opened. He is a seller, not an advisor.
You blindly follow the herd
To make money in the stock markets, you cannot blindly follow the herd. You need to be different. You do your research and identify a good stock. You want to buy this stock. However due to a bleak economic outlook, a large number of investors are selling stocks. Investors are selling all stocks. Good stocks and Bad stocks. This causes the prices of all stocks including good stocks to fall. You feel that because the price of the stock you are planning to buy has fallen, it is not a good buy.To be a good investor you cannot follow the herd. This is an excellent time to buy the stock you have chosen, as its price has fallen.
When you invest in stocks, you need to start somewhere. Even the great Warren Buffett, was not born a great investor. He became a good investor, simply by investing and learning along the way. Who knows …you might be the next Warren Buffett.
Under : Financial Planning