10 reasons why 90% of investors lose money in the stock market

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I read this a few days ago on Twitter, by user @WOLF_Financial and I share it because of its general interest for investors and traders. Thanks to @WOLF_Financial


I’ve worked at Goldman Sachs and helped manage over $5.5B.

Here are 10 reasons why 90% of investors lose money in the stock market:

  1. They don’t understand the investment

If you don’t know how a company makes money, you won’t know how it can lose money. This adds unnecessary risk to your investment plan. Risk that can be avoided, but often isn’t, and why most investors are losing money.

  1. They sell at the wrong time

There are only 3 reasons to sell an investment:

  • You found a better opportunity
  • The fundamentals changed
  • You met your goal

All have everything to do with your investment strategy. Neither have anything to do with the stock price.

  1. They invest on emotion

A falling stock price doesn’t mean sell. Especially if the company didn’t change. And a rising stock price doesn’t mean buy. Especially if the business is still run poorly. Stocks are volatile in the short term, but the long-term trajectory is up.

4. They want to break even

Breaking even is when you refuse to sell a stock until it returns to its original price. When you do this, you lose money through:

  • Bigger losses
  • Opportunity cost

Not all stocks recover. And sometimes your money can get a better return elsewhere.

  1. They invest what they can’t afford to lose

Investing is risky. You’re never guaranteed to profit. You might even lose money. So when you invest money you need in the next 3-5 years, you could end up with less than you originally invested. Now your losses are locked in.

  1. They don’t know their time horizon

If you don’t need the money for 10+ years, it doesn’t matter if the stock market is up or down today. And if you need the money in 3-5 years, you shouldn’t be in 100% stocks. Figure out when you’ll need the money, then invest accordingly.

  1. They don’t know their risk tolerance

Your risk tolerance depends on:

  • Age
  • Cashflow
  • Time horizon
  • Appetite for risk

In general, if your risk tolerance is low, you should take on less risk. And if your risk tolerance is high, you can take on more risk.

  1. They follow the herd

Just because someone did the research doesn’t make it good research. And just because a lot of people are buying/selling a stock doesn’t mean you should too. This is why market bubbles and market crashes exist. Too many people invest blindly.

  1. They chase performance

The goal of every investment is to generate future returns. But when you chase performance, you’re chasing past returns. So when you buy an asset that already did well, you can be certain you missed the run up, but not whether there will be another.

  1. They’re impatient

Building wealth is a marathon, not a sprint. This is especially true for young investors with long time horizons. So if you need the money now, it shouldn’t be invested. And if you don’t need the money, you shouldn’t be trying to get rich quick.

90% of investors lose money because they:

  1. Don’t understand the asset
  2. Sell at the wrong time
  3. Invest on emotion
  4. Want to break even
  5. Invest too much
  6. Don’t align time horizon
  7. Don’t align risk tolerance
  8. Follow the herd
  9. Chase performance
  10. Impatient