5 Reasons Why Investors Loss Money In Stock Market

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Investing money is simple but not easy”. Most people lose their money in Stock Market. Five reasons why people lose their money

  1. Lack of Research
  2. Investing through News and Tips
  3. Selling their investment when the market crash
  4. Buying at a high valuation
  5. Lack of Diversification

1. Lack of research

Most people invest their money without doing proper research on the company. If they see that the company is Profitable (which is one of the factors of a good company) they invest blindly. Besides it, many factors should be considered like the Management of the company ( Which is the most important factor according to Warren Buffet), Company Business model, Promoter Pledge Holding, Debt, etc…

As the investor, you should be updated about the company in which you invest. You should analyze an annual report, company results, company projects, etc… If you are not comfortable with a company or do not understand its business model, you should avoid investing.

2) Investing Through News and Tips

Investment through News and Tips may lead you to Disaster Situation, If you Invest through tips You May struct into Fraud situation like ( Money Laundering) and may face a Bankruptcy. “ One can make money through Gambling but not through Tips”. The news channel is like Chameleons, they change their statement according to current performance if the company makes a loss they would change their statement. “If you need a Tip to be a waiter you would earn, if you try to take a tip in the stock market you will destroy”.

3) Selling when the market crash

Worst Situation Occur For Investors When the Market Crash. At That particular time investors Loss their Wealth by More than 50%. Many investors go into the Depression and sold their Holding in Loss, and Never Enter Again to Market.
The Main Problem of the Investor is That they Do not Follow Rule of the Market. They deploy huge Capital in the Market and when the market crash due to an emotion they bear the loss. Let’s Understand with the help of two cases Let’s assume your income is $10000 per annum. Case 1 You had Invested $8000 in the Stock Market Which is 80% of your Annual Income. Suppose the Market Crash suddenly by 60% then you are going to a loss of $4800 which is 48% of your annual income. Case 2 If You had Invested $4000 in the Stock Market Which is 40% of your yearly income and the Market crashed by 60% then you are going to a loss of $2400 Which is 24% of your investment. You Can Stick to a loss of $2400 Rather than a loss of $4000.

4) Buying at a High Valuation

Avoid Paying High Margin

Most people Invest their Capital In the Bull Market without seeing the Valuation of the Market. In a Bull Market, People Buy the Stocks at a High Margin, and many times prices Don’t sustain and price Crash Drastically. With The price, the investor also gets devasted. Let’s learn from history.
During the 1990s people were Bullish on the Technological sector, at that particular time all were investing their money in the Tech company without doing any research as prices surge drastically. Most of the Stock was Trading around 10 times in margin. However, 2001 was a Terrific Period for Investors, Market Crash most of the investors lost their money. “Softbank” which had invested in Tech companies Crash 90% and till now it is not Recover which is 20 Year long time.
“ History Repeat itself “ During 2003–2005 Interest Rate was at a record low giving Opportunities to Reality Sector. For most of the people Buying properties, Many investment firms are heavily invested in Reality Sector. Most of the realty company was at high valuation and trading at 3–4 times margin. But after the crash of 2008, The price crashed, and investors lost 70–80 % of their wealth in Reality Stocks.

5) Lack of Diversification

Most people do not invest their money with proper diversification, which leads to the destruction of their wealth. Let’s understand why diversification is important. From 2016 to 2019 there was a slowdown in the Automobile industry, Most Automobile companies advance for correction which leads to the destruction of the wealth of investors. The sector like Energy, Banking, and Finance was doing well. If the Investor has diversified their Portfolio then they would not have much impact on their investment. Whether it is a Bull or Bear Market there are some sector which is Positive and there are some Negative Sector