Why most people lose money when investing

April 21, 2024

6 reasons why people lose money when investing

Lack of research

The foundation of active investing relies on an investors ability to research and ultimately understand a business. The truth is that retail investors are going up against analysts who do this for a living. It goes without saying that this means retail investors must be on top of their game.

Failing to research stocks thoroughly could result in retail investors making a mistake. This may seem hard, but research becomes easier the more you do it, and, more importantly, the more you will learn.

Research can be found on company websites, the FinMeUp app, Twitter, and websites such as https://simplywall.st/dashboard or https://sashares.co.za/. 

Ignoring the fundamentals

It is all well and good to do research, but investors should not neglect fundamentals.
Stick to your strategy, understand your asset allocation, make sure you diversify (but not over diversify), keep your long-term perspective, and use compounding to your advantage.

Listening to others

There may be a lot of people who know what they are talking about, however, there is an overwhelming number of people who do not tell the full story.

For example, in 2018, there was a report published on Shopify (NYSE: SHOP) that slammed the business for having a failing business model and being a get-rich-quick scheme. The author failed to mention that he was shorting (bet against) the stock.
Since the report was published, the stock has gained 188% in value. Ignore the noise and do your own research.

Not diversifying

Many people lose money in the stock market because they put all their eggs into one basket. For instance, if an investor puts all of their money into one stock and that stock performs poorly, they could lose a lot of money. When it comes to diversifying, investors should spread their money out into many different sectors of the market, to avoid losing all their money on one stock.

No control of emotions.

When it comes to monitoring an active investment portfolio, many investors make the mistake of reacting to short term fluctuations in the stock market. To avoid this, investors must have a strategy that they can stick to. Only invest in stocks that you have researched and have full conviction in, this way, if a stock price falls, you would be encouraged to buy at lower prices rather than panic sell.

Over complicating investments

The more complex your investments are, the more difficult it becomes. Simple ideas are best, simply because when they succeed, the reasons are obvious. And when they fail, the reasons are also obvious!

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