Why do people lose money in the stock market?

[tech/a]

I don't think i said something stupid did i ?

No
Perhaps in complete
But the criticism is harsh!

 

[robusta]

I think there are two main reasons.
This is the first.

too many buy high and sell low

sounds simple but the WB principle of buy when others are fearful and sell when others are greedy is not always easy to do, especially the the buying when all you hear is doom and gloom end of the modern world as we know it.

We all know how it works, buy up before the GFC because prices are going up and everyone is making money and sell after the crash because stocks are too risky. Rinse and repeat.

The second is too much of a short term attitude. For the minority that can make money trading shortterm I have nothing but the utmost respect. They have so much stacked against them; high frequency trading, dark pools, transaction costs, frictional costs...

This link has some returns from the US over a long period.

http://www.fool.com.au/2013/07/04/how-you-can-beat-the-investing-professionals/

Imagine how much better the returns would be if there was some way to pick businesses with some sort of competitive advantage at a reasonable price?

 

[ROE]

I am wondering how do individuals lose money in the stock market?. Do they fail because of there lack of knowledge in Economics, Finance and Sharing Trading and TA Software ?. Do they just see $$$$ signs everywhere and splash there cash around hoping on luck ?. I mean how do some investors fail in investing there money successfully in the stock market?.

All I hear in regards to the stock exchange people losing money I even know people who have halved there investment money in the stock exchange when trading shares. I hear that its a system made to lose money rather then make money?.

Are there any well written share trading books with strategies that can atleast some what help reduce your risk of losing all your investment money in the shares?

Thanks

Who are these people Are they investors or gamblers?

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." Ben Graham

if you are an investor, you would spend the time and the effort to make sure you invest in sound business
that deliver you adequate return over a long period of time...

This obviously doesn't guarantee you make money but I have not meet a person that follow these methods
lose their shirts or 50% of their money like your describe

Statistically show from the beginning of time the odds are heavily stack in your favor if you practice these principles over a long period of time...

 

[tinhat]

Even expert make mistakes. Nobody can win market all the times. Experienced players have edge over others. Stock markets look for future events.New players should learn as much as possible. Nobody can predict 100% correctly.

I agree.

As I have read tech/a say it is not about being wrong it is about how you respond to being wrong. Boggo and others here constantly throw up charts identifying not just a perceived potential entries (probability) but position sizes, initial stop losses (risk) and initial targets (probability).

The moment I understood (quite recently) that this game is about probability and risk management I changed my thinking. Now I've just got to change my behaviour (and learn and practice the required behaviour).

That said, in the long run (over thirty years plus) I am sure that an averaging in strategy into good growth and/or income stocks is going to do OK. But as we have seen in the past few years and as the historical charts demonstrate, there are decades where averaging into the blue chips or the index is going to get you nowhere.

 

[tech/a]

Investors or Gamblers

I think ROE's statement encompasses
Most which has been offered as " reasons "
By those replying.

 

[sydboy007]

biggest mistake to make - letting your buy price be an anchor.

Capital is to be protected. Looses need to be minimised and wins need to be run hard.

 

[Gringotts Bank]

Van Tharp: "You don't trade the markets, you trade your beliefs about the ,markets; and if your beliefs are not useful, you're in big trouble".

 

[Trembling Hand]

Van Tharp: "You don't trade the markets, you trade your beliefs about the ,markets; and if your beliefs are not useful, you're in big trouble".

How do you use that in application GB?

 

[Gringotts Bank]

How do you use that in application GB?

I have my own ways which you would laugh at.

Or Van Tharp has his methods outlined in http://www.amazon.com/Trading-Beyond-Matrix-Traders-Investors/dp/1118525663

 

[Trembling Hand]

I have my own ways which you would laugh at.

Or Van Tharp has his methods outlined in http://www.amazon.com/Trading-Beyond-Matrix-Traders-Investors/dp/1118525663

I'd hope you could give me the crash course. I don't read trading books.

 

[Gringotts Bank]

You don't read books. How about mini books? http://www.vantharp.com/matrix-mini-book-van-tharp.pdf

 

[skc]

Van Tharp: "You don't trade the markets, you trade your beliefs about the ,markets; and if your beliefs are not useful, you're in big trouble".

I have my own ways which you would laugh at.

Or Van Tharp has his methods outlined in http://www.amazon.com/Trading-Beyond-Matrix-Traders-Investors/dp/1118525663

You don't apply knowledge in the trading books, you apply your beliefs about the knowledge in the trading books; and if your beliefs are not useful, you are in big trouble.

P.S. What Van Tharp isn't saying "Belief is all you need"

 

[Trembling Hand]

What Van Tharp isn't saying "Belief is all you need"

Here is something he is saying (pg 3) that I think I have heard before somewhere,,

trading with no preparation can be as
fatal to your account as an untrained surgeon would be to a patient
or a bridge built by someone with no understanding of engineering
would be to anyone with plans of crossing it.
Thus, the first new rule is that trading is as much a profession
as any other. It takes significant time (several years) and a deep
commitment to become a successful trader. I hold a similar belief
to author Malcolm Gladwell, who says that the best people in every
field usually excel because they have successfully practiced their
craft for well over 10,000 hours. And when it comes to trading, it ’s
not just 10,000 hours of practice, because I ’ve defi nitely seen people
who have put in 10,000 and learned very little. I think that it ’s
probably 10,000 hours of practice at doing it well.

 

[Gringotts Bank]

You don't apply knowledge in the trading books, you apply your beliefs about the knowledge in the trading books; and if your beliefs are not useful, you are in big trouble.

P.S. What Van Tharp isn't saying "Belief is all you need"

He reckons beliefs and position sizing make up about 90% of the end result, whether good or bad.

 

[Trembling Hand]

He reckons beliefs and position sizing make up about 90% of the end result, whether good or bad.

Good luck with that religion. :

 

[Trembling Hand]

He reckons beliefs and position sizing make up about 90% of the end result, whether good or bad.

Hey GB if he reckons it takes 10,000 hour of "good practise" learning the craft of trading and thats only 10% of the journey how long does it take to learn the other 90%?

 

[Knobby22]

Hey GB if he reckons it takes 10,000 hour of "good practise" learning the craft of trading and thats only 10% of the journey how long does it take to learn the other 90%?

So if you spend 9 till 5 every weekday for 31 weeks in a row on trading you will know only 10% of what you need to know? I think it would be more profitable to get a real job.

 

[robusta]

So if you spend 9 till 5 every weekday for 31 weeks in a row on trading you will know only 10% of what you need to know? I think it would be more profitable to get a real job.

Yep sounds way too difficult to me. Look to the long term at least there is a easier edge there.

 

[Boggo]

Yep sounds way too difficult to me. Look to the long term at least there is a easier edge there.

Lets look at an example of that theory.

Market darling BHP is currently at the same price now that it was in June 2007.
Since then it has paid $5.84 per share in dividends.
Taking into account the dividend and CPI you would have achieved about 3.94% pa for six years on your investment.

I am aware that if you go back a further 6 years then you will capture the pre GFC and mining boom era but if you want to think long term starting now do you expect a repeat ?

Not saying that your theory is wrong, you are correct that it is easier but how effective for the future I have doubts about.

Just my

 

[skc]

Yep sounds way too difficult to me. Look to the long term at least there is a easier edge there.

There is no easier edge. To be a successful investor you'd probably need 10000 hours of practice as well.

One key difference between short term trading and long term investing is that, long term investing has very slow and ill-defined feedback loop (borrowing Craft's terminology here). If someone made 25% on investing their shares, how much of that was due to the company's own performance vs the overall market?

I've done ~1500 trades in the last 12 months - that's might be 20 times more than an investor's entire investing life. If I don't have an edge, it will definitely show over 1500 trades. But if an investor picking 15-20 companies don't have an edge, he/she can wing it with some good luck or just with the overall rising market.

Investing may seem easier but it might be just a function of the relatively smaller sample size.

So if you spend 9 till 5 every weekday for 31 weeks in a row on trading you will know only 10% of what you need to know? I think it would be more profitable to get a real job.

Check your calculations...