There are too many reasons why “investors” lose money in equities. Here I am trying to enumerate some of them. Keep visiting this post because as I get more points I will add them here rather than create a new post.
1. Confusing between trading and investing: Traders and investors both make money if done professionally. However most retail investors do not know whether they are traders, investors or speculators. So if they lose money in a trade they do make the same mistake again, and again. Professionals learn better than retail investors.
2. No asset allocation: Normally they have never enumerated all their assets and liabilities.
3. No portfolio construction knowledge: Just buying a few shares is not a portfolio. I recently came across a person (he considers himself successful as an investor) who had put all his equity portfolio (40% of his net-worth) in 2 companies (both of the same group). I was aghast at his portfolio, but as he had made a lot of money, he thinks it is the best strategy.
4. Not doing enough research: In your whole life you need to pick and hold about 50-60 companies. However to reach this figure you may have to look at say 500-1000 companies. If you are assuming an investing life of 40 years, looking at 1-2 companies a month is not difficult. Most retail investors are too lazy to do it.
5. Watching TV: Watching television is not a bad idea. Problem is when you listen to the sound bytes, believing it and acting on it. Do not think of business channels as your “financial guru”. They are not. They are here for entertainment.
6. The money that an investor makes (or loses) is a function of market behaviour and investor behavior. Markets are far, far easier to predict. Investor behavior is impossible to predict. Most investors cannot put a rationale to their own action, once the action is over.
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