Tons of questions might come in your mind like; why many people fail in share market world? Why only a few of them are successful in this field? Why there are differences in outcomes when people are investing money in the same share market? Why do I keep losing money in the stock market? Why people lose money in the stock market? Why there is a huge gap between successful and failure people? What could be a mantra to be successful in the share market field? And so on.
Like these or any other questions might come in your mind. No worries, here I’m going to share list of reasons behind why people face loss in share market. All your "who-when-why-what questions" will be answered in this article. You will also come to know why it is important to have enough knowledge about the stock market before moving ahead. There are some procedures, processes or techniques like things to be considered before investing money in share market.
You have got to learn, understand and must gather as much information as possible about share market. You can’t enter without knowing anything. I have seen in this field people who are blindly followed someone else and leads to a failure. You shouldn’t do it, key to the success is the thorough knowledge about the stock market. Lower the knowledge about processes or procedures, lower the chances of being successful.
The next thing is, you must keep your eyes wide open on market’s ups-and-downs. There are several factors need to be considered as well such as share rates, market behaviour, news, any transactions, deals affecting share market, any competition happening between companies and so on.
7 Reasons Why People Lose Money In The Stock Market?Anyways, here are a few reasons why people face loss in the share market. You may notice that few of the reasons may apply to you or your friends, relatives, colleagues who are active in the stock market field and still facing bigger losses.
Facing loss in the share market? checkout 7 big reasons:
1. Investment without prior knowledgeAs I said earlier, you shouldn’t enter this field without knowing anything. This is the first and most logical reason behind unsuccessful people. I have seen people who are blindly putting their money on stake without having any kind of background knowledge.
If we take an example of an employee or a student who spend years of their lives to acquire experience or knowledge. Then only, they can become successful in their field say in terms of an employee of the year, or first-class degree holder, etc. Likewise, in the share market, no one is going to be successful over-the-night. It needs time and you have to be patient. I would say, you should learn every aspect of this field. If you acquire more information, you will see how and when you can invest money in the stock market.
You can take out some time from your schedule or you can even join classes to gather as much information as possible around share market. Knowledge will make you ready. This way, you can earn more money from this field.
It’s like learning Jungle Rules, if you don’t know how to kill, you get killed…!!!!
2. Investment in Unknown business or CompanyThis is the second reason where people invest their money on unknown businesses or companies without knowing anything about their deals, transactions, revenues, growth, etc. You must know their market value, rating, history, behavior, and many other things before investing anything on the shares.
I have seen thousands of people doing this mistake. Also, there are some professionals who are working in medical, software like industries and having mindset that bank will give them good returns. Obviously, such professionals have done their own surveys on the banks already and then they have invested their money. It doesn’t mean that they are blindly investing money on bank shares. It’s because, they do have enough knowledge about bank transactions, market value, bank revenue, etc. Obviously, risk is always less when investing money on authentic firms, companies, businesses, banks, etc.
Hence, I would recommend, you shouldn’t invest anything on any unknown organization before considering such factors. Invest your money on well-known company on which you have done your own survey. This way, you will receive satisfactory returns from your investments. On the contrary, it doesn’t mean that any multinational company shares will give you profits. It totally depends on key factors that I have mentioned previously such as market value, revenue, growth, deals, transactions, etc.
3. Not a perfect time of investmentsThis is the third reason where people invest money on a very wrong time. If we take an example of sale or discount situation, people buy stuffs, products, property etc. when prices are lesser than their usual prices. You usually don’t buy products when there are no sales or discounts. Also, you don’t sell your flat when there is recession in real estate field. You usually wait for some time to have good deal in buying and selling your stuffs.
Likewise, in the share market, you must understand at what time you must buy or sell your shares. Make sure, you are buying shares at a discounted price and sell them when the market is at its peak. I have seen many people who are unaware of the current market situation and face bigger losses.
Let me tell you one thing, Stock market is a game of Timing. If you know a perfect time, no one is going to beat you. Many multinational companies, organizations are selling their shares with a huge discount at start-up. You have to keep an eye on it. There are also some cases where the market is at its peak, then higher shares are increasing even more by 5%, 10% or 15%. People fall for that and buy shares with higher prices. But during ups-and-down of share market, higher shares got drastically reduced to the lowest prices and people had to sell them out at such a lower-rates.
This is one of the mistake people usually does. You must control yourself while buying or selling shares. Otherwise, you won’t be having money in case of emergency like when companies are selling their shares with huge discounts.
4. Taking others adviceThis is the fourth logical reason where people invest money by taking advice from other people like friends, relatives, or brokers.
There is nothing wrong with it, but there is a risk when you do something by listening to other’s advice. What if they don’t have enough knowledge? How can you say that this is a perfect time to buy or sell? What if the chosen share won’t give you any return in near-future? etc. Anything can be possible.
I must say, never put blind trust on anyone else. You can take advice or collect information from other people, but you must do your own survey before investing money in the share market. Once you are ok with all the information you have, then you are ready to move ahead.
5. Investments for High Debt CompaniesThis is fifth logical reason where people invest money in high debt organizations. Usually, companies took a higher amount of loan to run their business. But over the period, if company fails in getting enough revenue and won’t be able to repay, it goes in debt. This debt damages their financial conditions as well as their overall ranking in stock market world.
You must avoid investing money on high debt companies. Like I said earlier, you must do your own survey which will bring information such as company ranking, deals, growth, financial conditions, transactions, etc.
When the market goes down, the company also face bigger losses. Companies are running their businesses for repaying their interests. If they fail, the company will be declared as Bankrupt. So please be careful while investing money. The company won’t give profit or can’t improve their financial conditions unless they reduce their loan amount.
Also, you must consider "margin of safety" factor. That means, say the cost of a share is $100, then there is no point in buying that share with the same price. You must buy it at some discounted price at $60 or $70. And this price difference is called as "margin of safety". Make sure, you are buying a share with a higher margin of safety.
6. Not sure about how much to investThis one of the silly mistakes investors do. People invest money without knowing actual share amount. You must know how much and how many shares you wanna buy. You simply can’t buy hundreds or thousands of shares without knowing share prices. You might run out of money and you won’t be having anything in case of an emergency. It could be the case that, you won’t be having money when shares are selling in huge discounts.
Also, as I mentioned above, consider the margin of safety while making bulk-buy of the share. Also, keep few emergency or backup amount with you. You can even invest money in fixed deposit schemes. This way you can arrange money in an emergency. I would say, never stake everything in case of share market. Always, keep something with you which will help you in trouble time.
7. Hold busted share and sell valuable sharesThis would be the last reason where people (unknowingly) keep non-profitable shares and sell out profitable shares. The stock market is a game of timing. You must know at what time you must buy or sell your shares. Also, you must know "which ones" you wanna sell or buy.
I’m sure you are seeing an increase in your share price say 5% or 10%. But what if it may increase by higher percentage like 70% or 80% if you wait for a few more days, weeks or months. People usually being tempted by such a lower margin rises and sell out profitable shares before time. You should not do this in the share market world. Wait for perfect time to sell out your share. Otherwise, a profitable share won’t give you satisfactory returns.
On the other hand, can’t you sell out non-profitable shares? This way, you can buy a few more profitable shares from the market. Say, if there are no movements in non-profitable shares for a long time, you must get rid of such invaluable shares. It’s like a dead-investment, it won’t give you enough returns if you hold onto it for so long.
Bottom LineWell, these are 7 reasons might helpful to you or your friends. I expect you to read all the above reasons carefully. Still, if something you want to suggest apart from the above information, do not hesitate to use below comment section. Please get in touch with me anytime. Happy to hear from you and to share as much information as possible to help others.
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