Most people invest in the stock market, but very soon they lose and say goodbye to the stock market. At the same time, they also lose the opportunity to earn money from the stock market forever.
But if someone knows how to make a loss in the stock market, then he should be alert in advance so that he does not suffer at least.
If you are reading this article before investing in the stock market, then you are quite intelligent. If you’re reading later, you’re on the right track now.
Today in this article, we are going to talk in detail about how there is a loss in the stock market and most importantly why there is a loss in the stock market. So keep reading to make your stock market journey the best.
How is the loss in the stock market | Why is there a loss in the stock market?
See friends, there is not one reason for the loss in the stock market, but there are many reasons due to which there is a loss in the stock market. If you understand all these reasons correctly, then you will not lose in the stock market.
It is not that you only have to understand one or two reasons, you have to read all these reasons sequentially so that all your concepts will be cleared. Let’s know all the reasons for how the loss occurs in the stock market one by one –
1. Learn to invest or trade in the stock market without investing
Most people come to the stock market so that they become rich overnight. But in reality it doesn’t happen at all. Whether you are trading or investing both takes time to make money.
When it comes to money, nothing is achieved without hard work. Believe me friends, if you learn and step into the stock market, then you will fully understand the mathematics of the stock market and will be able to create good wealth.
What happens in the stock market without learning that people buy and sell shares based on someone’s tips, which do not involve any research. This can cause huge losses. Others start short-term trading such as F&O trading or intraday trading, which has the most losses.
So to become a successful investor or trader, first learn and then come to the market with confidence.
2. Investing in an incomprehensible business
Another reason for how a loss occurs in the stock market is to invest in an understood business.
Many people invest in a business whose business they do not understand at all. When you invest in a company and want to hold it for the long term. So you have to review that business from time to time. When you do not understand the business, then how will you review that company?
For example, if someone does not understand the business of the bank at all and also has difficulty in reading the financial statements of the bank, then what is the benefit of investing in the shares of a bank?
When something goes wrong in that bank, I will not understand it, then how can I put my hard working earnings in that bank.
Risk comes from not knowing what you’re doing.Warren Buffett
The world’s greatest investor, Mr. Warren Buffett, also doesn’t invest in stocks of companies he doesn’t understand. Therefore, in my opinion, you should not choose any stock that is beyond your understanding.
3. Buying stocks at the highest price
Most investors buy the stock at that high price when the price of a stock starts rising rapidly. Together, let’s hope that stock will move forward from there. But in reality, their bets backfire.
When a stock continues to rise, it cannot happen that it will continue to grow. There will definitely be correction in it at some time or the other. Because of this, after buying at a high price, you start losing and you come in panic and sell the stock. Because of which you suffer losses in the stock market.
There are limits to the growth of any stock in a certain time. Whenever you find a quality stock in correction i.e. at a falling price, you should try to buy it. Because there can be high touch from there. But buying an increased stock at a higher price increases the chances of loss.
Be fearful when others are being greedy, and be greedy when others are fearful.Warren Buffett
This means that you should be alert when everyone is buying, while when everyone is scared in the market, you should buy shares.
4. Not making a stop loss
Stop loss is very important for a trader. If it is not used, there can be huge losses in the stock market.
What is this stop loss now?
You can limit your loss by using stop loss. If you do not put a stop loss on the stock, then your loss can be very high. Using the same stop loss order, your loss limits.
The price at which you set a stop loss, the maximum you can lose.
5. Buying shares based on tips
The next answer to how losses occur in the stock market is to follow the tips. It is a matter of fact that most people are very lazy to do their own research in the stock market. Because of this, they start buying shares based on the tips of their friends, those who work together.
Now what happens in stocks with tips, when they start falling, they panic very quickly. Because you have bought those shares on the basis of someone’s tip, you do not know their business at all. Because of which you sell that stock at a loss.
But if you had bought a share on the basis of your research and analysis, then you would have faith in that company even if that share fell. Where you wouldn’t have booked unnecessary losses.
6. Relying more on chart indicators
A new investor follows new charts in the stock market very much. If someone trades, it makes sense to look at his charts etc. But charts are so beneficial for a long-term investor.
When you buy a quality company for a long period, investors look at the chart of that stock and plan to sell it at a higher price and buy it back at the lower price. But these plans often fail. What would you do if that stock didn’t fall?
Doing so is also a way to make a loss in the stock market. In this, where you should have got 100% profit, you go out with a profit of 10%. Therefore, in the stock market, you should avoid making such mistakes.
7. Investing in Law Quality Stocks
The next reason for how losses occur in the stock market is to invest in substandard companies. If you want to invest in good companies for a long time, then you should understand financial statements a little bit.
If you invest in companies whose financial statements are very weak, then you may suffer losses in the stock market. As I tell you examples of some financially weak companies –
- Less than 10% profit and sales growth in the last 3 years
- Less than 10% ROE and ROCE
- Loss Making Company
- High debt company
If you also invest in some such companies, then you do not know the benefits, but there may be a loss. Therefore, you should avoid buying financially week shares.
Hope friends, you will understand even the information about how the loss occurs in the stock market. Keep reading. . . .
8. Trading by watching the news
One of the reasons for the loss in the stock market is to trade by watching the news. If a person trades according to the calls given by the news channel, then his chances of getting trapped are the highest.
News channels only fool retail investors. They will tell you the shares that are operated by operators in which pumping and dumping is done. This means that first the stock is taken up very high, then the operators start selling that share, due to which retail investors get trapped by buying at a high level.
Secondly, they tell you breakouts, which do not mean anything to a long-term investor. So if you want to avoid losses in the stock market, then you should never trade or invest by watching news channels. Yes, you can definitely use news for knowledge.
9. Not following the rules of the stock market
If you ask me what precautions should one take before investing in the stock market? So the answer would be that he should follow the rules of the stock market.
Such as –
- Invest based on risk-taking ability
- Invest for the long term
- Don’t try to time the market.
- After every market crash, the market shows good recovery.
If you follow all the stock market rules then you can avoid losses.
10. Not controlling emotions
It is very important to control emotions in the stock market. Because many times investors or traders are not able to control their emotions, due to which they take wrong decisions.
There can be many reasons for this such as the fear of losing money, greed to make more money in less time, etc. You should always make decisions based on logic to achieve success not only in trading but also in investing. You should never pay attention to rumors.
At the same time, it is very important to have patience in the stock market. When you lose patience even at a small fall in your purchased good stock, you can sell your stock at a loss. So in the short term you should have a habit of looking at losses in your purchased stock.
11. Not diversifying the portfolio
Another reason for how losses occur in the stock market is not to diversify your portfolio.
Not diversifying the portfolio can lead to huge losses. If someone has invested his entire investment in just 1-2 stocks and in such a situation, you can suffer a lot due to the fall of these two stocks.
Therefore, you should never invest your entire investment in 1-2 stocks. You must keep 10 to 25 stocks in your portfolio. This will greatly reduce your risk. Even if one or two stocks perform poorly, there will be no significant impact on your entire portfolio.
12. Investing in the stock market by taking a loan or borrowing money
Many times it has been seen that many investors become very greedy when they get a little profit in the stock market. Therefore, they invest in the stock market by borrowing money from the bank, borrowing money from someone at interest in the pursuit of higher profits.
But this may be a wrong strategy.
Because you have to return your loan or borrowed money in a certain time. But in this certain time, you are not at all sure about the profit on your investment.
If the prices of your purchased shares fall, then in this situation you will not be able to hold those stocks. Because the money invested is borrowed, which you also have to return. For this, you have to return the money by selling those stocks at a loss. There is nothing to eat and drink in it and there is a situation where there is damage.
Therefore, you should never invest the same money in the stock market that you do not need in the near future. One of the major reasons for how there is a loss in the stock market is to invest with loan money.
13. Holding losses while booking profits
One of the major reasons for losses in the stock market is to hold the loss and sell the profit. What most investors do is that if they make a small profit in a stock, they get very excited and book that profit and exit that stock. It was like cutting a golden egg-laying hen and trying to remove all the eggs at once.
On the other hand, if they are losing a stock or have made a wrong investment, then they hold the stock for a long time in which their loss continues to increase. But this is the wrong strategy.
If after investing, you feel that your decision has gone wrong and that company is not worth investing, then you should sell your investment and exit that company. But most investors do the opposite. They go from the shares of quality and strong companies to small profits, while they sit in the stock of a poor company.
14. Investing in Penny Stocks
Many investors feel that shares with ₹ 1 or ₹ 2 or ₹ 5 are quite cheap and they can become large multibager shares in the future. But friends, I would like to tell you that no stock is cheap or expensive according to the price.
If a stock that you are getting at a very low price, then it means that there is something wrong with that company, otherwise the share price of that company cannot remain so low.
For example, if you look at mrf’s stock which is around ₹ 90,000 today. But this does not mean that this stock can no longer be invested. Most investors want to get rich quickly by investing in penny stocks. But you should keep in mind that investing in penny stocks means taking a lot of risk.
15. Investing a lot of money at once
If an investor has a lot of money together and invests them together in the stock market, then the amount of risk increases greatly. Because if the market is running at a high level at that time and there is a good correction after that, then your investment can be down very fast.
Therefore, you should never invest a large amount in the stock market simultaneously. You can buy good quality companies little by little, which is a very good strategy.
If the market is down by investing money together, then you do not have any money left to buy good shares in that down market. Therefore, avoid investing large amounts to avoid losses in the stock market.
The essence of how losses occur in the stock market is that you have to continuously learn in the stock market and increase your knowledge. Only those people are successful in the stock market who constantly learn.
Hope friends, you must have liked this article of how to lose in the stock market or what precautions one should take before investing in the stock market. If you have any questions, you can ask me through the comment box and if you liked this article, then definitely share it on social media networks.
FAQ: How is the loss in the stock market?
- How to start the stock market?To invest in the stock market, you have to open a demat account. After that you can invest in the stock market.
- When does a loss occur in the stock market?When shares are bought at a higher price and sold at a lower price, there is a loss. The opposite happens in short selling.
- Why do people fail in the stock market?One of the simple reasons for this is to come to the stock market without preparation. Stepping into the stock market without learning means that the chances of failure are the highest.
- How to reduce the loss of the stock market?Losses can be reduced by using stop loss in trading.