subject: Investing In Stocks - The Reasons Why A Lot Of People End Up Losing Money [print this page] A lot of people who have some spare money lying around like to invest some of it into the stock market. It is very exciting making your own investment decisions and managing your own portfolio, but the trouble is that many inexperienced investors end up losing money. So why is this?
Well the first reason is because they will often get their timing completely wrong. Successful investing is all down to buying low and selling high. You want to buy quality stocks when they are temporarily oversold, but some people still insist on buying them when they are trading at very high levels, which is often far riskier.
Another reason why people lose money is because they invest far too much of their money into speculative high-risk stocks. There is nothing wrong with investing a small percentage of your overall capital into some small-cap stocks in the hope of making big profits, but if you invest too much you run the risk of losing all your capital should these companies go bankrupt. This is sadly quite common with many of these small-cap stocks.
You ideally want to put most of your portfolio into mid or large-cap stocks that are growing their profits each year, and ideally paying a decent (and growing) dividend every year. That way you can withstand any losses from your riskier investments.
Money management is very important when it comes to investing. You need to keep your losses small by using a strict stop loss each time, and let your winning trades run for as long as possible. A lot of inexperienced investors end up banking small profits if positions go their way in a matter of days or weeks, and holding on to losing trades for months or years in the hope that they will eventually turn around and come back to at least break-even. However this is a very bad strategy.
Another bad strategy is to invest in stocks on the back of rumours and tips. The forums are full of rampers that encourage you to buy stocks on the back of false or misleading information. Similarly the journalists that offer investing tips and advice are not much better either. Indeed if you were to blindly follow the share tips of various writers and journalists you would almost certainly end up losing money in the long run.
So the point is that it is not easy to make money from stock market investing. The majority of people who invest their own capital will ultimately end up losing money. However if you avoid making many of the mistakes highlighted in this article, there is no reason why you shouldn't be able to make money from stock market investing yourself.
by: John Robertson
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