Often come across headlines like 'Stock Market Bullish’, ‘Sensex Surges Over 500 Points’ and think ‘Then why am I losing money in the stock market? Well, let us tell you that you are not alone. As per popular estimates, up to 90% of people lose money in the stock market, including both novice and seasoned investors. You ask why? Read to know!
While the stock market has always managed to attract a flurry of investors, the recent surge in the number of retail investors is largely fueled by the bull run that the market has witnessed post-pandemic. New Demat account additions have jumped from about 38 lakh in FY20 to 1.22 crore in FY21. More than one crore Demat accounts have been opened in the first eight months of FY22, taking the tally of a total number of Demat accounts from 3.34 crore at the end of FY21 to 4.41 crore as of August 2021.
Why Do Retail Investors End Up Losing Money?
Investing in the financial markets is a way to build wealth over time. However, it tends to see a lot of volatility in the short to medium term, leading to a drop in the value of your stocks.
Investing is an activity that requires thorough understanding, a lot of research and virtues such as patience and the ability to digest the volatility. This can be hard for a new investor. They often tend to be at a receiving end when the market crashes.
New investors often lose money in the market as they fail to understand market cycles. Many new investors enter the market during the boom cycle when the economy is growing and businesses are reporting healthy growth in their earnings.
However, the good times would eventually come to an end, and retail investors often fail to foresee the change of cycle. They often end up being trapped at higher levels, resulting in losses during volatile market conditions. Such times test one's patience and conviction in the investment ideas. But, retail investors often lack the courage to stomach that volatility.
Common Mistakes Retail Investors Make
Here’s a quick look at a few common mistakes retail investors make that cost them dearly.
1) Lack of Research
Research is the backbone of successful investing. However, most investors fail to gather necessary information before investing. Retail investors are often guilty of not studying the fundamentals of the company or the intrinsic value of the stock.
Moreover, investing does not end with buying a few shares. There are plenty of factors such as global and domestic economic trends, sector-specific developments, government policies etc., that impact the earnings of a company. As an investor, it is vital to stay informed and carefully assess the impact of the latest development on the company that you are invested in.
2) Opinion-Based Investment
Most investors rely on random sources of information for investing in the stock market. Most of the time, it leads to a disaster, leading retail investors to lose money in the stock market.
It is very important to develop your understanding of stock as you are the best judge of your risk appetite. Therefore, invest in a business that you can understand and feel comfortable staying invested in for the long term.
3) Emotion-Based Decision-Making
In the stock market fear, greed, and bias often drive investment decisions, instead of data and logic. Such investors often fail to handle the emotional turbulence during volatile market conditions. It leads to illogical decisions. It often leads to disappointing results.
How Teji Mandi Helps?
Investing is a professional activity, and it would be prudent to leave it to professionals to handle your investments. Teji Mandi is a SEBI registered investment advisor that offers a unique solution where investors receive a readymade actively managed portfolio of 15-20 high-quality equity stocks for long-term investing. We follow a focused stock-picking method where we combine a portfolio of tactical bets with long term winners. The Teji Mandi portfolio has beaten Nifty, inflation and fixed deposits.
