3 Reasons people lose money in stocks: How to recover?
The experience is almost similar for everyone who buys stocks for the very first time; you buy, and almost instantly, the value drops by close to half. This is quite a harsh introduction to stock trading and especially for someone who is looking to grow their portfolio. Seasoned investors will tell you that it has also happened to them but they are still in the game. Why does the script remain the same for nearly everyone? Is there a chance of bouncing back, earning your money back and making a profit? Here is some information that is applicable to all investors. While losses in a portfolio might happen even to the most cautious, there is a reason it happens to most people. The good news is that there is a chance of redemption.
1. Failure to understand the market cycles
Ignorance plays a big role in investment. If you know nothing about the prevailing market forces at the time of buying stocks, then you will be at the mercy of sheer luck. The stock market responds to the general economic and business landscape in a region. When it is booming, the economy must be doing well and the employment rate is declining. On the other is inflation because when it hits, the cost of living goes up, the GDP growth figures are not impressive and this has an adverse effect on the stock market.
Action: do not rush to dispose of stock that appears to be performing poorly. Remember the 9/11 attack? The NYSE suffered a 14% loss but those who held on did not loose. Actually, within a few weeks after the attacks, the value of shares for most companies listed there had bounced back. The worst that can happen during this phase is waiting for more than a month; if you are the patient type, you will see a time when your investment is restored and further on when it starts to appreciate in value.
2. Making decisions from the mind versus heart
In one of Michael Jackson’s songs, he uses the words ‘… the heart is not so smart… goes where it should not go…’ See? You cannot use the heart as the basis for making decisions that have a direct influence on the rest of your life. Emotions are brewed from the heart; mainly fear and greed. Why is it that people often want to do what others are doing in the hope that the crowd will prevail over market cycles?
In matters of investing, you will save your mind and even your heart from anguish if you took the time to understand basic behavioral concepts as regards finance. There is nothing wrong with investing where everyone else has invested but not because they are there. Doing your own analysis makes the investment decision a personal one. You will be glad you took the time to analyze the markets because the chances of losing money will be drastically reduced.
Be aware of what the herd is doing and if the cost of assets seems overvalued, ignore it and stick to your initial investment plan.
3. Chasing after instant riches
The idea of growing your money is quite tempting especially if the channel used promises to offer instant results. Long term investment calls for patience which a lot of new investors lack. Others ride on the experiences of people who have amassed wealth from the money market oblivious of the journey in between. Underestimating the money markets is the quickest way of losing your money because trading strategies only sold as claims do not work all the time.
Have you ever heard someone describe the money market as a profit harvest that you reap by simply buying and selling? Sadly, that mentality is rather common. Investors think that by regularly buying and selling stocks, they can outsmart the market and make a killing in profits.
You can save yourself from the get-rich-quick wave by following the road less travelled. A slow and steady progression for your money can take some time to build significant gain but a win is eminent. There will always be someone selling the pitch on guaranteed income but the best bet would be to stick to fool-proof approaches