Surprising, but true: 90% people lose their money in the share market.
क्या शेयर बाजार में 90% लोगों का पैसा डूब जाता है?
There is a very old, but popular joke about shares and stock market. If you have lost your money in the share market and you are sad, then do not worry. If you meet someone you know who has lost money in the stock market, you will feel good because your loss has been reduced.
Although this joke has been going on for decades, it still holds true today. Even today there is no dearth of people who lose money in the stock market every day. According to a popular estimate, 90% of people lose their money in the stock market. These include new and experienced investors also.
What, isn't this surprising? But it is true that 70-90% people lose their money in the share market.
Common mistakes that cause losses to investors
Investing in haste: Buying shares without doing research.
Over-trading: repeatedly buying and selling shares.
Relying on Tips: Investing on social media or friends' advice.
Emotional Decision: Taking wrong decisions due to fear or greed.
Not taking care of the portfolio: Ignoring the investment after making it.
There are many reasons why investors lose money in the share market. Let us discuss some of the most important reasons.
1. Investing in share market based on rumors and stock tips
Do you get SMS like this - “Buy 1000 shares of XYZ Company at Rs.... ?
Such messages are deliberately sent by fraudsters through bulk SMS. Such fraudsters working as share market cartels want to lure innocent investors into shares which have no solid basis.
Many investors, especially new ones, fall prey to unthinking stock tips from someone who himself relies on someone else's advice. And if stock tips from friends/relatives/colleagues are not enough for someone in today's digital world. So, there is a constant bombardment of information including stock tips on social media, WhatsApp groups and business news channels. Click here to read about 3 wrong reasons to buy stocks .
We can see many self-proclaimed experts or anchors on business news channels advising to buy or sell stocks in the hope of making good money in the next few moments. But unfortunately, this creates a dangerous trap for naive investors. Gullible investors often take this bombardment of stock tips as valid and invest based on it without knowing the truth.
The disadvantages of stock tips can be well understood with the example of Infibeam Avenues. On September 28, 2018, Infibeam Avenues stock fell by almost 71% from around Rs.197 to around Rs.50. Do you know what was the reason for this decline? A WhatsApp message spread in a trading group caused panic among investors and they started selling shares in a hurry.
The loss was so much that the MD of the company had to give clarification in this regard. Its statement said that due to some WhatsApp messages, there was a lot of panic among market participants and investors. The MD described this message as wrong and motivated by the intention to deliberately cause harm to the company.
It is said that “bad news is usually good news for someone else”. This applies 100% to news related to equities. Often, rumors are deliberately spread by some organizations through the media in the form of fabricated news. Its goal is to give false confidence to investors that they can stay ahead of others and earn profits from this special news.
Understand this from an incident that actually happened. Graphite India stock was a hot pick on most business news channels and websites in September 2018. A target of Rs. 400 was given to the shares of this company, whereas at that time its market price was Rs. 100. However, four months later, the same business news channels and websites recommended a sell on Graphite India shares with a target of Rs53. Currently this share is trading at the level of Rs.181.
Can you imagine the loss an investor would have faced if he had bought Graphite India stock based on buy recommendations given by business news channels and websites?
Always remember that not all information is correct information.
2. Investing in penny stocks in the Indian stock market
Penny stocks are cheaper depending on the name, usually at Rs.1 to Rs.9 or even cheaper. Being cheap, such stocks attract some investors. However, some investors forget in the process that price and value are different.
Penny stocks have small market capitalizations and are little known publicly. Because of this, the possibility of management fraud and poor money management in such companies is very high.
Investing in penny stocks is like throwing your money down the drain. Unfortunately, few investors work hard to put money into such stocks. Prakash Steelage, Lanco Infratech, Gemini Communication and Birla Power Solutions are some of the prime examples of penny stocks which sank 75-90% of investors' wealth.
3. Engaging in intraday and short term trading
Many people are involved in short-term business. By doing this they feel excitement, thrill and a feeling of getting rich quickly. But trust me, if you want excitement, go to Vegas. This is because wealth building is a tedious and lengthy process.
Generally, people associate success with the first one or two trades and this misconception leads them to make more transactions with higher margins. However, in the process, they forget that the loss on any unsuccessful transaction can potentially wipe out all their previous profits.
Many people, after losing their money in intraday trading, consider the market as their enemy to compensate for that loss and end up causing further losses. While doing this, their emotions prevail over them instead of logic, due to which they have to suffer more losses. Revenge trading is one of the underlying reasons why many traders lose their entire capital.
4. Lack of patience while investing in share market
Patience is one of the most important qualities for long-term investing. Investors who understand the importance of being patient while doing so make profits, but those who do not pay a heavy price for it.
In the short term, news and sentiment impact markets and stock prices. Furthermore, any economic, global, or political changes can affect stock markets in the short term. However, in the long term, stock prices are governed by the fundamentals of the business and its earnings.
Many investors buy good stocks at a high price, but panic and sell them at a low price at the first sign of correction. Instead they should adopt the mantra 'buy low and sell high'.
"Successful investing takes time, discipline, and patience. No matter how great the talent or effort, some things take time: You can't get nine women pregnant and have a baby in one month." – Warren Buffett.
5. Not investing in fundamentally strong businesses
Fundamentally, strong stocks have transparent management. Its business model is strong and professionally run. Because of this, such companies protect themselves from the effects of any kind of economic crisis. Also, when the economic situation improves, such companies are the first to improve and perform better.
As you may know, the year 2008 was one of the heaviest declines in the history of the stock market. Many investors panicked and sold their investments with huge losses, as if there would be no tomorrow. However, those who stayed invested made huge profits following the market correction in less than 24 months.
The same thing happened again in March 2020 after a huge fall. At that time the indices had fallen sharply after the emergence of the Covid-19 pandemic. However, the market recovered quickly and Indian indices touched new lifetime highs in less than 11 months.
In this way you learned that there are many reasons due to which 90% of investors lose money in the share market. Forget profits, most of them lose their entire capital and blame the market or their luck. Successful equity investing is not rocket science. It's all about making the right investments, being patient, and avoiding huge mistakes.
Do Research: Get complete information before investing money in any share.
Diversify: Don't invest all your money in a single company or sector. Include stocks from different sectors in your portfolio so that the risk is reduced.
Think long-term: It is important to be patient in the stock market. Focus on long-term investing instead of short-term trading. Invest for a period ranging from three years to more than 5 years.
Use stop-loss: Set a stop-loss order to limit losses.
Review regularly: Review your investments from time to time and make adjustments as necessary.
Buy in installments: Use every market decline as an opportunity to buy cheap.
Maintain your focus: Don't let yourself get distracted by too much information or rumors you get through WhatsApp/Twitter/news channels.
Don't time the stock market: Don't waste time in knowing what will happen next in the market, how much it will fall or how much it will rise.
Example
Suppose Ram bought a share without doing research and within a few weeks he suffered a loss, so he panicked and sold the share. On the other hand, Shyam chose good stocks with research and held them for a long time, which gave him good returns. Profit can be earned only with the right strategy.
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