Most of the people lose money when they invest in stock market, agree?
I came across a statistics, which said 90% to 99% of people losses money when they invest in stock markets, and only 1% make profit (90% of them make heavy losses).
So, why most of them lose money? What are the reasons that majority of their investment in stock market?
There are three major factors that are involved, which includes-
Let’s take a situation for instance. Imagine, if a whole bunch of people with no advance driving skills were to be given keys to drive a formula one racing car at 230 kmph round a circuit, how many would crash after a few rounds?
Probably most of them, isn’t it? Well, this is exactly happening in stock market.
The majority of investors are made up of general public who enters the market looking for instant riches without any business or financial training and as a result crash and burn.
So without financial and business training, how do most people make decision on buying and selling a stock?
The answer is “Fear and Greed”
It is the combination of ignorance; fear and greed that motivates people to buy a stock when the price is too high and sell it when the price is too low, resulting in a loss.
Warren Buffet has aptly simplified the same in his quote: “Be Fearful When Others Are Greedy, and Be Greedy When Others Are Fearful.”
My friend has recommended to me and he himself has bought the stock.
My colleague gave me this tip or my broker told me that a placement is going to take place at Rs.100/- in next 3 days.
My uncle’s friend works in the company and he told to buy the stock.
Can anyone figure out what is common in all three scenarios?
There is no fundamental information or reason about the company, why the share is attractive for investments at this valuation and nothing is said about the business or future of the company.
People buy for wrong reasons, they make loss and later blame the market, by saying, ”Investing in stock markets is risky”
Still, if you feel that investing in stock market is risky. Let me tell you, RISK is everywhere, even in your business, even in your job, even while you walking on street, risk is everywhere
Warren Buffet has nicely defined risk – “Risk Only Comes From Not Knowing What You Are Doing”
This third and final key point of this discussion is applicable to almost all asset class. How many times it has happen that a price of a stock has continuously gone up and there is euphoria around it.
Whenever there is an excitement and euphoria in a stock.
It is always a point of discussion.
Most of the people around you and your friend might own it.
You might have a left out feeling, you might feel that you have missed the boat and ultimately you end up buying the stock.
This happens to most of us. There are many such examples of euphoria and excitement built up. One such prime example is the end of Bull Run in 2007/2008 when index touched 21000. There was so much excitement around Reliance Group Company. There might be hardly anyone who is invested in stock market and he may not have owned shares in Reliance Group Company.
“If You Want To Make More Money Than Other People You Cannot Invest Like Other People.”