Why Beginners Are Not Able To Make Money Through The Stock Market
Consider the 1st time you acquire your first shares. Did purchased on the advice of an acquaintance or a broker? Did you do your homework to check whether the stock has potential for making money? Did you monitor your holdings carefully to ensure the stock was behaving properly? Did you implement the proper sell rules to unload your stocks? Should you (I’m assuming that you are a beginner in the stock markets here) answer these questions faithfully, you will be able to find out the explanations why you haven’t been making money in the stock market.
Most beginners in the stock market part with their money by doing this: they hear a couple of great money making opportunity of your lifetime, open up a brokerage account when possible to place their dollars at work. As soon as they are doing that, they’ll purchase the stock immediately, especially if the stock market seems to be going their way. The waiting begins as they are going to watch the account and dream about retiring on a island resort somewhere else with the easy cash they’ve earned from this profitable “investment opportunity of the lifetime”. After a while, the stock eventually starts to tank. “Everything is still ok” they console themselves “Just a bit downside… it willgo up soon”. However, when the stock tanks even more and reaches to some extent where the pain is just too great to handle, they cannot control themselves and unload whatever stocks they’ve, leading to huge losses they might never manage to recoup. In the meantime, the fund managers and also the market makers are making a lot of money in the markets on the beginners’ expense.
To those who follow brokers’ recommendations, take note! Do note that their primary source of income is to help you to buy and sell stocks, and never to help you become rich. Just consider it: the more you buy and sell shares whatever the price, the more they’re going to earn through the transactions they create on your behalf. The next time your broker tries to sell something to you, ask him/her whether he is also a shareholder and demand to find out some proof. I’ve a personal principle I live by and it is to ask anyone who wants me to buy some form of investment on whether he/she is invested in it. If not, forget it. Some analysts’ recommendations are meant for financial institutions to sell stocks to retail investors for a better price. Just imagine: An analyst recommends stock ABC which includes a buy rating a lot of times beginners rush to accumulate shares. Guess who sells it to them? Yes, the sellers would be the mutual funds and financial institutions who will make a tidy profit from the process.
This situation can be described as common one and washes away the amauteurs who swore to keep off the stock exchange for the rest of their lives due to the huge losses, making way for an additional crop of bright-eyed, enthusiastic beginners who think they could make huge profits from the stock market. Briefly, “fresh meat” for the expert traders and the financial institutions in the stock market who await them eagerly.
So how can one prevent themselves from being mauled in the stock market? This is summarised into 1 paragraph:
Those who think investing or trading is similar to gambling often treat the stock market as a giant casino and find themselves getting eaten alive. Conversely, folks who treat investing or trading as a business venture possess a significantly better opportunity of excelling after they’ve learned ways to manage to steer with the storms of the market.
In casinos, gambling is attributed to lady luck. Actually, the casinos operate in terms of probability; the games are designed such that the odds are with them and they will win money in the long term. The stock market in this similar in this way to casinos’ business model as the odds are against the retail investors or traders.
It is important to start with the appropriate mindset. The mindset of a gambler (do take note we are talking about amateur gamblers here. In actual fact, professional gamblers often take their craft as a business as well and behave as such, that is the secret of their success) is very much different to that of a business owner. In a company, you often cover all bases to ensure your your enterprise will prosper in the long term.
The key question on most beginners’ mind is this: So how do I start? The solution: Education is the key. You must spend time in order to do research and understand the various modes of investing and trading to confirm what suits you best. Always begin from the basics of stock market systems and ensure you have a very good proper entry and exit system for purchasing and selling stocks prior to a start. Preparation is the key to success .
Briefly said, beginners in the stock market often can’t generate profits because they don’t put in due diligence needed which is analogous to starting a successful business. However, it is possible to generate very good money off the stock market and many individuals have managed to do that. If they could do it, anyone can.
Bernard J Dreyfus is an experienced stock speculator and loves to share his experiences in the stock market. Do check out the interesting articles he puts on his blog on beginners’ guide to the stock market to know about the “Big Picture” of stock speculation and how to make a lot of money. A must read for all beginners interested to know what the experts will never share with you!