Why Do Most People Lose Money in the Stock Market?

Why Do Most People Lose Money in the Stock Market?

Why do most people lose money in the stock market?

Rakesh Jhunjhunwala has earned Rs 13,000 crore by investing in the stock market alone. Seeing its success story, millions of people come to the stock market with the expectation of making money. But this is the same platform where 90% of people lose their hard-earned money and never come back.

Why do only 10% of people make money in the stock market and 90% fail? Because they are making the same mistake over and over again.

Here, I am going to show you 9 reasons why most people lose their money in the stock market.

1. Follows the Crowd :

February 2020 Sensex crossed 42,000

My friend said, “Hey, the stock market is booming, let’s invest”

“But, the stock market is overvalued” , I said

“But I know a few people who invested 6 months ago and today their portfolio has grown by 50%. They know everything,” he said.

By the end of March 2020

My friend: I lost my hard-earned money. The stock market is the worst investment. I will never invest in the stock market again. “.

Conclusion: Most people start investing in the stock market by following the crowd without any knowledge and eventually when the markets fall, they lose the hard-earned money.

2. Invest in fancy stocks:

What are fancy stocks or sectors ?.

  • These are the stocks that everyone wants to buy.

But, how do retail investors lose money in these fancy stocks ?

  • Due to its bright future and very high growth potential, often a sector or stock is very focused.
  • All TV news channels broadcast news of the same stock every day.
  • After that, all FIIs, DIIs, and big investors start accumulating it and make these stocks very expensive.
  • Because all follow the same stocks, a bubble forms in the valuation of the stock.
  • At that time, retail investors also participate in stock rallies at very high valuations.

But, these valuation can no longer be sustained.

One day, this bubble will burst, and these stocks will come down very sharply

All retail investors, who enter the market at last, lose money in a very short period of time.

In the Indian stock market, this is the period when the bubble was formed.

  • Dot-com Bubble(1995-200)
  • Real-Estate Bubble(2003-2007)
  • NBFC Bubble(2014-2018)

NBFC Bubble(2014-2018):Between 2014 to 2018, All wanted NBFC stocks. Over time, they became more expensive. The bubble was created in all stocks. In 2018, this bubble burst and you see all the stock price conditions. Most stocks lose more than 50% of their value.

Lose money in NBFC stocks performance

Conclusion: To make quick money in the market, most people invest in fancy stocks on any valuation without any research, and when the market crashes, these stocks fall the most, and retail investors lose their money.

3. Invest For the short term:

One day, I read a question on the forum site “Give me a stock name for 6 months”.

Like this, most people want to invest their money in the short term.

Here is a beautiful graph of Sensex performance throughout the years.

Historical return of the sensex

Just look at the graph very closely.

  • The stock market is very volatile in the short term and in some years it goes below 50%.
  • In the long run, the direction of the Sensex is only upwards.

Why should you always invest your money only in the long term?

Invest for 1 yearyou have a 21% chance of lose money.,

Short-term investment (1 year)

  • The chart shows that if you invest in the Sensex for one year, you have a 21% chance of losing money.
If you invest for 10 years,chances to  lose money is 0%

Long-term investment (10 years)

  • The chart shows that if you invest in the Sensex for 10 years, your probability of losing money is 0%. In other words, you are always in profit.

Warren buffett quote

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

Warren Buffett.

Conclusion: In the world of stock markets, most people come for short term investments. Because of this, they lose their hard-earned money in the market and will never come back.

4. Invest based on Tips

One day, my friend called me and said “I’ve lost 50,000 in the stock market”

“Didn’t you research the stock before investing?” I said that because the stock market was booming at the time.

He said, “No. one tip came in my WhatsApp and I invested in it.”

Like this, you will see many market experts around you whose job is just to give tips. They really have no knowledge of the stock market.

In addition, they offer short term tips like invest in XYZ company, you will get 0% return in one year.

Generally, they are stock brokers and they don’t care about your money. They just want to get a commission from each of your trades.

Conclusion: Like my friend, all the people who invest money based on tips always lose money in the market.

5.Invest In Penny stocks

What are penny stocks?

  • These are stocks that trade below Rs 20 and have a very low market cap.

In general, most investors are attracted to these stocks because of their low prices. They believe that today’s share price is only Rs 5 and in the short term it will go up to 10.

But, the reality is that these stocks never show a price of 10. Instead, their price goes down and one day it goes 2.5 and then 2.

Lose money in unitech

It was the year 2016.

My uncle said “Hey, Unitech’s share price was 522 in 2008 and today it’s only 4, let’s invest”.

I replied “The company’s fundamentals are very weak.”

He said very confidently: “But,I bought 10,000 shares, it will go 100 Rs, sure”?

In 2020

My uncle: “I lost all my hard earned money in Unitech”.

Conclusion: People prefer to invest in low priced stocks and by investing in them, they always lose their money.

6. Buy At High and Sell At Low

What is the right time to invest?

“When there’s blood on the street, it’s time to buy.”

Because at the time, all high-quality companies traded on a reasonable valuation.

But, the reality here is different.

I am showing you how most retail investors enter the market.

  • 2007-2008: Over 50% decline in the market.
  • At this point all the retail investors exited the market and all the big investors entered the market at the bottom.
  • After a while the market rebounds and starts to climb.
  • 20% of retail investors participate.
  • Market up 100% in just 2 years from its low.
  • 100% of retail investors invest on top.
  • In 2012, the market crashed and retail investors lost their money.

Conclusion: In general, when there is an opportunity to buy in the market, the investor really does the opposite, they sell and re-enter the market when the market is high.

7. Don’t do research

What does research mean?

  • This is the process by which you choose a high quality company.

But most people don’t like to do research. They do a lot of research on buying a new car, a new house, a new phone but never for stock selection. In the end, they invest in a low-quality business.

When the market fall, these stocks will fall more than the market, and people go out with heavy loose and lose money.

8. Sell profitable stocks early

Most people sell their profitable shares very early and keep the shares that are at a loss.

In 2007,My friends portfolio was

  • HDFC bank
  • Asian paints
  • Unitech
  • Suzlon
  • Kotak bank
  • DLF

What did he do after that?

He sold his best performing stocks when the stock made a good profit.

Over time, it sold all of its profitable stocks and in 2020 it has only loss-making stocks in its portfolio.

And, In 2020 his portfolio was

  • Unitech
  • Suzlon
  • DLF

Today, my uncle’s portfolio is at a very heavy loss.

Conclusion: This is a common view of all retail investors. They sell all their profitable stocks early and keep loss-making stocks in their portfolio.

9.News Based Portfolio

Imagine you went to buy a car.

You are in the car showroom, the car is identified, ready to give a check. And all of a sudden you get a call from your friend and he says

“Hey, where are you?”

You: “I’m in the car showroom, the car is almost finalized and in fact the check is ready”

Your friend: “Don’t buy a car because car prices will fall in the near future as the finance minister will reduce taxes on cars”

What will you do

Be honest with your answer, it will help you understand what you are doing wrong.


99% chances are, you won’t buy a car.

Another scenario

You are in the car showroom, the car is identified, ready to give a check. And all of a sudden you get a call from your friend and he says

“Hey, where are you?”

You: “I’m in the car showroom, the car is almost finalized and in fact the check is ready”

Your friend: “Buy a car as soon as possible, car prices will go up because the finance minister will raise taxes on cars”

What will you do

Be honest with your answer


99% chances you will buy a car

See what is happening to you.

NEWS forces you to change your goal of buying a car

This is the biggest mistake investors make.

NEWS tends to change your portfolio from your target based portfolio to a NEWS based portfolio.

Also Read : Why People Lose Money in the Market.( 3 other reason)

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