Introduction
There is a study that states that about 90% of the investors and nearly 99% of the traders lose money in stock market.
The primary reason for losses in the stock market lies in people’s mindset. Most people approach stock market as a get rich quick scheme rather than a long term investment.
Losing money in the stock market is more common than most people realise and it often has less to do with bad luck and more to do with poor mindset.
This blog is designed to help you avoid common investing mistakes and guide you toward a smarter and a more sustainable approach to building long term wealth.
Also Read: Why Do 99% Of The Traders Lose Money In Stock Market
Here are 5 Effective ways to avoid losing money in the stock market
The following are 5 ways to avoid losing money in the stock market:
- Investing at right valuations
- Invest by studying the fundamentals
- Hire a personal financial advisor
- Smart with a small capital
- Avoid penny stocks
- Bonus: Keep practicing
Investing at Right Valuations
Investing in the stocks at a right valuation improves long term returns. Stocks which are bought at right value or under value have a high margin for upward movement.
Buying a stock at over priced value simply means you are paying more than what it is worth.
Read Chapter 8 of the Intelligent Investor Explained for Beginners, you will see how the author has emphasised on buying stocks at the right price.
If you have invested in a stock at the right valuation, short-term price fluctuations shouldn’t bother you as long as the company’s fundamentals remain strong.
Invest by Studying the Fundamentals
Studying the fundamentals of a stock is critical to making informed and successful investment decisions.
When you know the company’s revenue, profits and business model, you invest with conviction and not luck.
One should avoid blindly following tips, trends and hot stocks. Something that has previously rallied and provided returns in the past may not fetch similar returns in the future.
Investors need to evaluate a stock’s potential for future growth before making a buying decision.
Hire a Personal Financial Advisor
Having a personal financial advisor is by far the most underrated thing in India.
A financial advisor is an expert who will make customise investment plans based on your income, risk appetite and goals.
During the times of market crash, investors tend to either get panic or act greedy. A financial advisor will provide you with an objective and non biased advice, helping you avoid emotional decisions.
Start with a Small Capital
Small capital will help you understand how the market works. You will gain experience and develop practice which are initial to be a successful investor.
Starting with a small capital will help lower your emotional pressure and help you take more rational decisions.
This is the biggest mistake people do. They want to go all in. People are always living in a fear of missing out. But trust me, market gives everyone more opportunities than what they see.
Start with a small investment to understand how the system works. Once you are comfortable, gradually increase your capital.
It’s normal to make some mistakes in the beginning, that’s all part of the learning process.
Avoid Penny Stocks
Penny stocks mostly belong to companies with poor fundamentals and unstable business models.
Low stock prices and trading volumes can make penny stocks a breeding ground for price manipulation and pump and dump scams.
Penny stocks also tend to have low liquidity, making it hard to exit your position.
Please note that, one is not missing out by avoiding penny stocks, but one simply chooses to protect the money and focus on investments that actually build wealth over time.
Bonus Tip: Keep Practicing
The importance of consistent practice in avoiding losing money in the stock market cannot be overstated. Just like any skill, mastering the art of investing takes time, effort, and real life experience.
The more you practice, the more you understand market patterns, investor psychology, and how the stock market behave.
With more practice, you will gain the confidence needed to take quick decisions which will ultimately help to avoid losing money.
Trading and investing is a skill like driving a car. If you want to get better at it you will need to keep learning and practicing.
Conclusion
The key to avoid stock market losses is developing discipline, making wise choices, and never stopping learning from your past mistakes.
You can safeguard your investments and increase it gradually over time by concentrating on solid fundamentals, investing at right valuations and ultimately staying away from dangerous penny stocks.
Keep in mind that every successful investor started out as a novice and made mistakes.
I hope you liked this blog post. If you have any more points on this topic then drop them in the comments. Also, don’t forget to join the newsletter to receive updates on my next blog.
