{"id":693,"date":"2020-04-10T16:40:11","date_gmt":"2020-04-10T11:10:11","guid":{"rendered":"http:\/\/capitalante.com\/?p=693"},"modified":"2020-06-14T11:13:05","modified_gmt":"2020-06-14T05:43:05","slug":"why-people-lose-money-in-stock-market","status":"publish","type":"post","link":"https:\/\/capitalante.com\/why-people-lose-money-in-stock-market\/","title":{"rendered":"Why People Lose Money in Stock Market"},"content":{"rendered":"

Many beginners invest in the stock market to make their fortune. But after sometimes they leave the market suffering a huge loss. It is also seen that many investors can never make a profit they also give up the investment in the share market. It is seen that due to some blunders in their decisions they make the loss. This is not your problem only. Usually, 90% of the investors entered the stock market and made a huge loss. Here we will discuss why people lose money in stock market i.e. the common mistakes a retail investor makes while investing in the stock market,<\/span><\/p>\n

Top 10 Reasons why people lose money in Stock Market<\/span><\/strong><\/span><\/h2>\n

Reason #1. Being guided by fake information from the cheat<\/span><\/h3>\n

Very often, as an investor, you may receive various phone calls, messages or e-mails from different unknown sources. There you will find information regarding investment. This information is meant to misguide you and sent by insiders of any company who has a personal purpose to fulfill. They actually conduct illegal insider trading exploiting your interest. In an illegal insider trading, an insider of a company along with a small group of people buys a particular stock and share price-sensitive information. So, huge artificial demand is created for the particular stock resulting in higher prices.<\/span><\/p>\n

Then, at a certain point when the prices hit the \u2018satisfactory\u2019 level, the insider exits the company along with his small group of people. In other words, this insider sells\u00a0stocks and makes profits. Soon the stocks plummet resulting in huge losses for the retail investors.<\/span><\/p>\n

Solution – Skip these type of Information<\/span><\/h4>\n

Through messages or via email you will get several insider information like some company\u2019s profit margin will be tripled and if the price of that stock is now Rs. 100\/- then the stock will go to Rs. 200\/- within 3 or six months or one company will give 1:1 bonus share or one company is getting merged with a larger company etc. They usually name a large and famous company like Titan Company, Infosys to impress you.<\/span><\/p>\n

As an investor, you should be cautious to avoid getting into the quagmire of insider trading scams. Never invest in a company or an industry that you have never heard of even if you get a tip-off.<\/span><\/p>\n

Reason #2.\u00a0 <\/span>Get tempted to Marginal trading<\/span><\/span><\/h3>\n

Margin trading is a high-risk strategy that allows you to buy more stock than you are able to. Buying on margin means to borrow money from a broker (similar to a loan) to purchase stock. The retail investor can take a position in the market by paying an initial margin of 50 percent (your own money), while the broker can finance the balance 50 percent value of the stock.<\/span><\/p>\n

Let us imagine you have Rs. 500\/- in your account. And your broker offers you to borrow Rs. 500\/- for marginal trading. You are amazed that you are eligible to buy share worth Rs. 1000\/- instead of Rs. 500\/-. You buy that share in the morning at a cost of Rs. 1000 and in the afternoon you notice that your share price is down to Rs. 900, so you lose 10% of your money besides brokerage. Your broker tells you to repay his Rs. 500\/-. Then you sell the share at Rs. 900\/- and repay your broker Rs. 500\/- along with brokerages.<\/span><\/p>\n

Finally,<\/span><\/h4>\n

In the morning whereas you had Rs. 500\/- and in the evening now you have Rs. 400\/-. So you lose 20% of your money besides brokerage.<\/span><\/p>\n

Your broker is always gained. Whenever you buy or sell shares he gets his brokerages irrespective of loss or gains you make. So, avoid Marginal Trading.<\/span><\/p>\n

Reason #3.\u00a0 <\/span>Following the advice or tips offered by so-called analysts<\/span><\/span><\/h3>\n

According to the author of the \u2018The Intelligent Investor\u2019 by Benjamin Graham \u201cYou can\u2019t predict Market\u201d.<\/span><\/p>\n

Maximum retail investors while buying share do not analyze the fundamental, technical, qualitative analysis, balance sheet, profit and loss account, dividend history, EBITDA Margin, PAT Margin etc.<\/span><\/p>\n

Many business news channels show intraday trading tips delivered by various analysts. These analysts discuss various trading tips all day long. Watching this, a retail investor gets amazed and acts accordingly.<\/span><\/p>\n

When the stock market is up, these analysts give a buy call and when the market corrects they give a sell call.<\/span><\/p>\n

\"why<\/p>\n

I have seen in my experience that when Apollo tyres, Titan Company, Motherson Sumi, HPCL scale to new highs these analysts advise buy recommendation with a higher target on the intraday basis or monthly basis. After 3 months when these shares correct which is quite obvious, these analysts recommend selling with a lower target and stop loss.<\/span><\/p>\n

What to avoid,<\/span><\/h4>\n

These analysts are not God. They can\u2019t predict the market. If they are able to predict the market then they are the only persons who make a huge profit and get rich very easily. If I can predict the market then why shall I offer you free advice to make you rich? These analysts get paid by either TV channels or companies which they recommend. They are just doing their job to earn money for them.<\/span><\/p>\n

Generally, it is seen that these so-called experts recommend some shares to buy. But after 6 months they recommend selling these shares. What has happened in the last 6 months is that the company has gone bankrupt, or its business has been closed. Then why do these so-called analysts alter their recommendation within the span of 6 months? The reality is they have been paid by such companies to promote or recommend the stock so that the demand of that stock can be increased. Then the owner of the concerned company will get hid money and minimize loss or gain profit. But you as an investor will lose your money.<\/span><\/p>\n