Why retail investor lose money in the stock market
According to a study, Retail investor's combined return in stock market over a period of 5 years was -4.5%. So the big question is, why retail investors lose money in the stock market? The answer to this million-dollar question is Because they see the “Price” of the stock, not the “Value” of the stock.
Let’s understand this with the help of an example. Suppose you went to the grocery store to buy bread. You saw it was selling at 40 rs yesterday but today it is priced at 30 rs. Will u buy it in large quantities and store so that when someone comes to you to buy at 40 rs you will earn a profit? No right. Because the bread is old now and does not hold 40 rs value which it used to have. And if you hold it for few more days no one will buy it from you at even 5 rs. The same thing happens in the share market. When some stocks lose most of their original value, retail investors get excited and buy-in hopes that it will reach its original value one day. But the point you should check first that if that stock still holds its value or not. When Yes Bank stock was falling from 400 rs and came below 200 rs people started buying in hope that it will get back to 400 without any research. And we all know what happened in the end. It went up to 9 rs. So while buying a falling stock we have to check first why it is falling. It is falling because of emotion or short term condition then you can take advantage of the situation. Otherwise, it is just like buying a 2 days old bread packet at discount hoping its price will go up.
Price is the last thing to check in company stock. This is the main reason why retail investors continuously lose money in the stock market.
