Why do people suffer huge losses in the stock market?
There are a number of reasons why some people in the stock market make huge losses. Some of them are:
A) Greed for quick money: People are always in a hurry to make money. They always want to get rich quick. These investors will rush and invest more in any stock. They do not understand that investing in stocks requires patience, research and homework. They blindly follow the recommendations of stock market “experts” or act on the support of family and / or friends without doing any homework. When these stocks start correcting and depreciating from their opening price, investors panic and sell their portfolios, thereby gaining losses.
B) Herd mentality: When a well-known investor buys or sells any stock, most investors are not well aware of the dynamics of the stock market and follow him blindly by buying or selling a particular stock. Huh. They do not analyze the strategy followed by such investors. They do not apply their skills or their understanding on stocks when taking the necessary action, which can lead to losses.
C) Emotions Cloud Investment Verdict: The first thing people do during a loss is increase their lot size to recover quickly. In fact, if you have done damage before, there is no guarantee that you will not do it again. When it comes to money, one of the two emotions that dominates us is greed and fear. Many people who lose or gain money in the stock market are not due to a lack of intelligence, but to an inability to control their emotions when making investment decisions.
d) Lack of patience: Patience is the key to success in the stock market. The only thing you need to do in the stock market is to buy good stocks and allocate time. This is the only way to make money here. But most people who lose in the stock market do not have the patience. Although many of them are able to find good stock, they are not able to make a big profit with the investment. Why? Because they have no patience. They can’t even give 2-3 years for their stock to grow. They want quick results. However, this is not the only problem for such investors. In some cases when their shares lose 20-30% of their value, they become very impatient and sell their stock quickly. They do not analyze the reasons why stocks are down 20-30%. If this is due to external factors rather than a change in the fundamentals of the stock, it may be beneficial to keep the stock for a few more months.
E) Lack of proper knowledge: Your first step in investing in the stock market is to learn about it from as many sources as possible. How does it work? What are the risks in the stock market? What are the market dynamics? Among other things. Most retail investors do not know enough about the markets and do not blindly invest in stocks based on “gut trends” and / or share price and / or recommendations given by experts on financial news channels or websites. Huh. If you do not know much about the company you are investing in, you will make a profit in the short run, but you will lose in the long run.