Have you ever asked the question, “Why am I losing money on stocks?”
The primary reasons usually involve emotional decision-making or a lack of a clear strategy. To stop losing money in the stock market, you must transition from short-term speculative gambling to a long-term investing mindset.
Here are 5 key steps to help you reduce the risk of losing money in the stock market.
1) Understand Why Your Stocks Are Falling
Investing can sometimes feel like a scene from a movie where everything goes wrong at once. You might feel like you are doing everything right, yet the numbers in your account keep turning red. It is a frustrating experience that leads many investors to scream, “Why am I losing money?!” There are typically three main reasons why a share price goes down. 1) A stock had a bad earnings report. In other words, their EPS is decreasing, and they missed their earnings estimate. 2) They have legal issues. Maybe there was a data leak or a patent infringement. 3) They lost a major customer. If you do research and see bad news, don’t freak out! In most cases, the bad news won’t last forever. The reason is that one good quarterly earnings report can cause everyone to forget about the bad news. It’s like the stock market has amnesia. If a stock has a good earnings report, the share price can take off like a rocket!
2) Avoid Short-Term Thinking
One major reason for your losses is likely a focus on the short term. Human beings are naturally wired to seek immediate rewards, or in other words, instant gratification. With investing, you have to train long-term thinking, which can be very hard to do. A good reminder is the old investing philosophy that it’s “time in the market, not timing the market” that builds wealth. Be patient and focus on the long-term and let compound interest do the hard work for you.
3) Focus on the Financials
How do you know if the financials of a stock are good or bad? Good news, at Tykr, we have a traffic light-inspired rating system where stocks are either On Sale (Green), Watch (Gray), or Overpriced (Red). Only about 15% of stocks have an On Sale rating. To add another layer of confidence, we have the 4M Confidence Booster, and getting a score of 80 out of 100 puts a stock in about the top 1% strongest stocks in the market. And after that, we have the “score to rule all scores” which we call “The 7”. Essentially, it’s the easy button. Getting a perfect score of 7 out of 7 will put that stock in the top .01% of stocks in the market.
4) Understand Wealth Building Mode vs. Wealth Protection Mode
If you are still working and your timeline to achieve financial independence or retirement is 5 years away or more, then you are in Wealth-Building Mode. In this case, you should try to create a focused portfolio of 10 – 15 stocks. Tykr’s job is to help you find those stocks so you can build your wealth with less stress. On the other hand, if you are at or near financial independence or retirement, then you are in Wealth-Protection Mode. In this case, you should try to invest in 15 – 30 stocks, invest in dividend stocks, or consider investing in ETFs or Index Funds.
5) Avoid Penny Stocks
Any stock with a share price less than $5 (USD) is classified as a “penny stock” and 99.9% of penny stocks never break out past $5. Any stock with a share price between $5 and $10 (USD) is “flirting with penny stock territory”, and there is a 90% chance these stocks will never break out past $10. Penny stocks are essentially businesses that have run out of ways to raise funds. Bank lending has slowed down or completely stopped, venture capitalists have lost interest, and even private equity laughs them out the door. So how do businesses like this raise more capital? The simple answer is to go public. In other words, they try to raise money from regular people like you and me. Unfortunately, most retail investors don’t know the difference between a good business and a bad business. And when these stocks go public, they arrive at a low share price, such as less than $10 (USD). A lot of retail investors believe they can “get in early” and make big bucks when in reality, large institutions won’t even pay attention to these stocks, and the share price will never rise.
Conclusion: Taking Control of Your Financial Future
If you have been asking why I am losing money on stocks, do not be discouraged. The key is to keep your focus on the long term. By focusing on quality companies and buying them at a fair value, you put the odds in your favor.
Do you want to buy and sell stocks with confidence? Tykr offers a 30-day free trial and a 30-day money-back guarantee. Visit tykr.com today.