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11/16/2010 02:17:58 AM · #1 |
Why most people lose money in the stock market most of the times? Because a few people must make money most of the times!
But why do those who lose money actually lose? Because they don̢۪t know when to enter and when to exit.
It makes sense to enter at absolute low and exit at absolute high. Unfortunately, no one can achieve the same. The next best option is to enter at near low, and exit at near high.
It is easier to exit at near high, because it is marked by the break of up-trendline of a major bull market. However, if you were to enter at near low, you will have to go back a least a few years back in history, which you can̢۪t possibly do.
Due to the zigzag nature of the market, all the points are not equally conducive to entering the market. So, the question remains – When to enter the market?
The wisdom of Warren Buffet dictates that you enter the market when dollar bills are available for 40 cents. It doesn’t always happen. It happens only once in 5-10 years. If you cannot wait for that much time, what is the next best opportunity for entering the market? The answer is given by ‘Turtles Trading System’.
In a new Bull market, the trendline is very steep for the first few months. It will get successively broken (at least 3-4 times) giving way to less steeper trendlines. After a period of about 15-18 months, the trendline formed will be less steep but more sustainable. The market will rise slowly (at the speed of Turtles) but steadily. This trendline is likely to last for next few years, signifying a major bull market. If you have not been able to enter the market at absolute lows, it makes sense to enter when the sustainable trendline has just formed.
In case of Sensex, this trendline was formed when Sensex touched 18000 (Nifty touched 5400) on 31st August 2010. The slope of this trendline is about 600 points per month on Sensex and 180 points on Nifty. Even if this trendline gets broken soon, giving way to a less steep trendline with a slope of 500 points on Sensex (150 points on Nifty) even then the stock market will perform as follows:
Nifty/Sensex
1st Nov 2010 - 5700/19000
1st Dec 2010 - 5850/19500
1st Jan 2011 - 6000/20000
â€Â¦
1st Jan 2012 - 7800/26000
1st Jan 2013 - 9600/32000
1st Jan 2014 - 11400/38000
1st Jan 2015 - 13200/44000
1st Jan 2016 - 15000/50000
It is highly likely that Sensex will touch 50,000 by January 2016.
Most people do not have a long term view, and do not know when to enter and when to exit. That̢۪s the reason why most people lose money in the stock market.
Message edited by author 2010-11-16 02:22:16. |
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11/16/2010 12:05:50 PM · #2 |
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11/16/2010 12:18:15 PM · #3 |
An alternative view is that the stock market values stocks by reference to collective assessment of all the available data as to their potential future value. As a result, future movements are fundamentally unknowable unless you have more information than the market (insider trading or access to good analysts).
If it was so easy to make money as you suggest, surely more people would be doing it?
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11/16/2010 03:19:47 PM · #4 |
Sorry but I find little wisdom in the OP. It's not especially hard to make money in the market.
To build on what Matthew said ... Those who lose money in the market do so because they know less about the stocks they buy than the market knows collectively. Because their knowledge lags the market's knowledge, their decision making lags what the market already knows, so forces they perceive that would push up a stock's value have already done so in the market. They miss the rise, or worse, participate in the fall.
Why do they know less? Because they spend less time and money being well informed. Investing is WORK and those that WORK at it out perform those who don't. The reason most small investors lose in the market is because they treat investing as a hobby, not as work. And they ignore some fundamentals like diversifying to reduce risk. And asset class balancing and rebalancing, for example.
And btw, Warren Buffet is a deciple of Ben Graham who wrote the book on value investing. One could do a lot worse than study the old master in these challenging times. |
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11/17/2010 11:48:50 PM · #5 |
Originally posted by Matthew:
If it was so easy to make money as you suggest, surely more people would be doing it? |
I never suggested that it was so easy to make money. It is in fact so easier to lose! LOL. |
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11/18/2010 12:13:47 AM · #6 |
A lot of people lose because they panic and sell when there's a sudden dip. A loss is only a loss on paper until you actually sell. The market cycles and will eventually rebound.
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11/18/2010 12:15:49 AM · #7 |
Originally posted by Dr.Confuser:
Sorry but I find little wisdom in the OP.
... Because their knowledge lags the market's knowledge, their decision making lags what the market already knows.
The reason most small investors lose in the market is because they treat investing as a hobby, not as work. And they ignore some fundamentals like diversifying to reduce risk.
...Warren Buffet is a deciple of Ben Graham who wrote the book on value investing. One could do a lot worse than study the old master in these challenging times. |
Dr Confuser, thanks for the appreciation.
I don't believe that market already knows anything. Market is governed by natural cycles of greed and fear. People buy, when they feel that the prices are low, and they will go up. People sell, because they feel that prices (for the time being) have gone sufficiently up, and they will go down.
Although, major players (Smart Money or FIIs) influence the market in the short term, even they cannot influence the major cycles. (They can control the ripples and waves, but not the Tide!).
People lose in the stock market because of unrealistic expectations. In the strongest bull market (in the Indian context), the Sensex rose from 8000 to 20000 from March 2009 to November 2010. This means an increase of 12000 points in 20 months, or an increase of 600 points per month; i.e. an increase of 20 points a day! Most people do not consider it an increase unless it is 400 points in a day.
In todays world, when instruments like Index futures are available, it automatically takes care of diversification.
And yes, Value Investing is still relevant in these challenging times.
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01/02/2011 08:43:11 PM · #8 |
Originally posted by cpanaioti:
A lot of people lose because they panic and sell when there's a sudden dip. A loss is only a loss on paper until you actually sell. The market cycles and will eventually rebound. |
Basic human nature, we think things will continue going as they have been recently. Market falls? People sell. Market rises? People buy. So they buy high and sell low, losing money. |
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