The lure of big money always draws investors towards the stock markets. However, making money in the market is not that easy.
The lure of big money always draws investors towards the stock markets. However, making money in the stock markets is not that easy. Apart from knowing the fundamentals of investing, one is also required to have a sound understanding of the market. If not, then instead of making any profit, your are most likely to incur losses in the market. Here we are taking a look at 10 common reasons why people lose money in the equity market:
1. Ignoring the Fundamentals of Investing
Merely having some knowledge may not be sufficient to earn good rewards from the stock market if the basics of investing are forgotten. These basics can help you hold your ground even in a difficult market situation and can create big money going ahead. Even world-renowned investors would not have been able to make big money had they not followed the fundamentals of investing. Therefore, the sooner you learn doing it, the better it will be for your future.
2. Taking advice from wrong sources
Many investors try to seek help or guidance from their relatives, friends and colleagues who themselves rely on the advice of others. “As a result of this, these people are hardly able to make good profits from their investments. They end up receiving vague and outdated information because of which they sometimes also incur heavy losses,” says Abhinav Angirish, Managing Director, Abchlor Investment Advisors.
It is difficult to make predictions in equity markets. In fact, a majority of predictions of professionals too end up being wrong. Therefore, if you are thinking of trying your luck by making any guesses about the stock market, then this would be one of your biggest mistakes and will eventually lead you to lose big money.
4. Lack of patience
One must have patience in the market to make money. “Let it be after buying or before buying, Impatience can never lead you to make the maximum profit. Therefore, it is important for an investor to patiently wait for the best time to invest and once invested, then patiently give it time to perform. Only then you can end up making money,” says Angirish.
5. Incorrect portfolio Structure
Most individual investors in the equity market are unaware about how to structure their portfolio. This is because of lack of professional guidance, which in turn results in massive errors being made in portfolio construction. “Non-diversification is one of the biggest mistakes that most people make as they are so confident about their stocks that they think it’s illogical to invest in multiple stocks, which may average out the profits. Remember, you should always try to minimize risks and maximize the profits,” says Angirish.
6. Having herd mentality
When people watch their neighbours, friends and colleagues making money in the stock market, they feel left behind. Then they start doing the same thing in a bid to make money, which is the biggest mistake they make. One must remember that everyone has some plans and strategies about their investments. Therefore, copying their investment strategies may not suit you and you might even end up losing substantial money. It is in your own interest, therefore, not to follow others.
7. Unrealistic Expectations
We as human beings are greedy by nature and are never satisfied — be it our compensation or investment return, we want more of everything. This sometimes makes us set unrealistic targets which are unachievable. Therefore, it is important for you to set realistic targets.
8. Lack of swift action
There are situations in the market which need quick actions. These are the moments which can make or break your investments. So, whether you are making or losing money, you must know your limits and should be always prepared to act on time.
9. Insufficient Research
If you don’t study the companies before putting your money into it, then you are not investing, you are gambling. “Lots of investors, in fact, usually go by the name of a company or the industry they belong to and eventually lose money. This is, thus, not the right way of putting your money into the stock market,” says Angirish.
10. No Control on Emotions
While there is need for investors to focus on making logical, careful decisions that support a long-term goal like retirement, a person’s emotions can cloud his investment decisions, leading to choices that are not in his best interest. For example, when markets remain bearish for a long time, some investors lose patience and sell their stocks at rock-bottom prices, incurring losses. On the other hand, “sometimes some people buy shares of unknown companies without really understanding the risks involved. Thus, instead of creating wealth, such investors burn their fingers very badly the moment the sentiment in the market reverses. Therefore, don’t let either fear or greed cloud your judgement,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.