Money laying in cash only loses its value with time, because of inflation. If you stash it in a savings account, the profits could be of some help in keeping the money’s value current, but no substantial gains will be received.
That money, no matter how little, could potentially grow into something big if invested wisely. While some key conventional investment avenues in Pakistan include real estate, gold, and foreign currency, people are gradually realizing the potential of stock investments.
Unlike other investments, the investment in stocks can begin with a very small amount. Plus, as opposed to real estate where you have to sell the entire property if you need some cash, stocks can be sold instantly and only in a portion that you wish.
But, despite its potential, people still complain of losing money in the stock market. Why does this happen? In this article, we’ll walk you through some key reasons why people fail in their stock investments.
Lack of financial & stock market literacy
Focus on financial literacy & imp.
Most of the people who fail stock investments are the ones with no or little insights into the market and current trends. Lacking financial literacy and taking ‘social media driven’ decisions, such investors are prone to succumb to the usual lows of the market.
Impulse buying and selling is what people need to avoid when investing in stocks. Even the healthiest of businesses aren’t immune to the ups and downs of the stock market, which is a usual occurrence in the stock business.
A little research on the stocks you have invested, or are planning to invest, in can help you make informed business decisions and cash in on your stock market investment. Informative blogs on financial literacy, such as Sarmaaya’s, can offer valuable help.
Short-term, impulse-driven investments
Don’t invest just because a friend did too. Invest with full knowledge and commitment to make the best of your investment. The money you put into buying stocks, regardless of how little or huge, is after all hard-earned which you can’t afford to lose in a bad or unwise investment.
The biggest mistake people make is to think short-term and sell on a small dip of the share. According to him, patient and committed investment is the least what brokers want from you; the more frequently you buy and sell, the more commissions they make.
It’s been shown time and again that long-term compounding gains achieved through share price appreciation and dividends will outpace the nominal gains achieved through day-trading and short-term holds. We have examples of those who invested as little as 10,000 rupees per month and their portfolio is now over 10 million rupees. Patience is the key!
Focus on share trading rather than the business
When you buy shares of the company, you’re buying a small part of it which technically makes part of the business. As Warren Buffett says, only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
For such insight and foresight too, you need a grip on the market which will come with studying the trends. Investing in a business that’s stable and growing in the real world will inevitably increase shareholder value in almost any economic environment.
Mostly and naturally, new investors are more attracted to stocks that are jumping regardless of the business’s actual value. Various market factors such as govt fiscal and monetary policy, technological changes, market rumors, etc.cause some stocks to inflate beyond their real value, a bubble which ultimately bursts bringing investors heavy losses.
Fear of losing the hard-earned money
This is pretty natural and it’d be unfair to blame people for fearing loss of their hard-earned money. In fact, the prospect is also highly probable in case of poor investment decisions. That’s where market experience and long-term commitments come in.
If you’re new to stocks, it’s always advisable to start little. You can begin even with 5,000 rupees to learn how the stock market actually works. As mentioned above, your goal shouldn’t be to become a trader and focus on instant gains. Instead, think long-term.
Some industry experts suggest starting with mutual funds before stocks. Risk is comparatively low in mutual funds as it’s a type of investment where funds of many investors are pooled into an investment product. As they invest in a variety of securities, mutual funds offer diversified holdings instantly and easily.
Failure to keep track of their investments
Inability to keep an active track of your stock investments will render you unable to make swift and informed business decisions. Once you have begun to invest in stocks, you need to keep track of the progress you have made against your goals for any necessary adjustments along the way.
Tracking of your investments enable you to know how your investments are performing and what changes you need to make to your portfolio. With investment tracking, you can set your goals, track your progress, revisit historical data, choose your asset mix, create a plan, maintain trading history, and know your investing personality.
In Pakistan, Sarmaaya’s smart investment tracking solution via web and mobile app allows you to do it all. It’s a free service with which you can track your investments in stocks and mutual funds, see the past performance and future projections of the business you’re interested in buying the shares of, and do a lot more though its highly intuitive and advanced platform.