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 They end up receiving vague and outdated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.
3. Speculation
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.
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