How to Invest in Stocks

Three reasons that prevent you from making money by investing

The stock market is the only market where products go on sale and everyone is too afraid to buy. That may sound silly, but that’s what happens when the market goes down even a small percentage, as is often the case. Investors became scared and sold frantically. However, when the price rises, investors sink first. This is the perfect recipe for “buy high and sell low.”

To avoid these two extremes, investors must understand the typical lies they tell themselves. Here are the three biggest:

1. “I will wait until the stock market is safe to invest.”

This excuse is used by investors after stocks fall, when they are too afraid to buy in the market. Maybe stocks have declined several days in a row or maybe they have experienced a long-term decline. But when investors say they hope it’s safe, it means they’re waiting for the price to rise. Therefore, waiting for (perception) of security is only one way to finally pay a higher price, and in fact it is often only the perception of security that investors pay.

What drives this behavior: Fear is a guiding emotion, but psychologists call this more specific behavior “reluctance to lose.” That is, investors would rather avoid short-term losses at any cost than achieve long-term profits. So when you feel the pain of losing money, you tend to do anything to stop that pain. So you sell stocks or don’t buy even when prices are cheap.

2. ‘I’ll be shopping again next week when it’s lower.’

This excuse is used by potential buyers while waiting for the stock to fall. But investors never know in which direction the stock will move on any given day, especially in the short term. Stocks or markets can rise as easily as falling next week. Smart investors buy stocks when they are cheap and hold them back from time to time.

What drives this behavior: It can be fear or greed. Frightened investors may worry that stocks will fall before next week and wait, while greedy investors expect a decline but want to try to get a much better price than today.

3. ‘I was tired of these stocks, so I sold.’

This excuse is used by investors who need excitement from their investments, such as action in casinos. But smart investing is really boring. The best investors sit in their stocks for many years, allowing them to accumulate profits. Investing is not a quick game, usually. All profits come when you wait, not when you trade in and out of the market.

What drives this behavior: the investor’s desire for excitement. That desire can be driven by the mistaken idea that successful investors trade every day to make huge profits. While some traders do this successfully, even they ruthlessly and rationally focus on the outcome. For them, it is not about excitement, but about making money, so they avoid making emotional decisions.

 

Three reasons that prevent you from making money by investing

The stock market is the only market where products go on sale and everyone is too afraid to buy. That may sound silly, but that’s what happens when the market goes down even a small percentage, as is often the case. Investors became scared and sold frantically. However, when the price rises, investors sink first. This is the perfect recipe for “buy high and sell low.”

To avoid these two extremes, investors must understand the typical lies they tell themselves. Here are the three biggest:

  1. “I will wait until the stock market is safe to invest.”

This excuse is used by investors after stocks fall, when they are too afraid to buy in the market. Maybe stocks have declined several days in a row or maybe they have experienced a long-term decline. But when investors say they hope it’s safe, it means they’re waiting for the price to rise. Therefore, waiting for (perception) of security is only one way to finally pay a higher price, and in fact it is often only the perception of security that investors pay.

What drives this behavior: Fear is a guiding emotion, but psychologists call this more specific behavior “reluctance to lose.” That is, investors would rather avoid short-term losses at any cost than achieve long-term profits. So when you feel the pain of losing money, you tend to do anything to stop that pain. So you sell stocks or don’t buy even when prices are cheap.

  1. ‘I’ll be shopping again next week when it’s lower.’

This excuse is used by potential buyers while waiting for the stock to fall. But investors never know in which direction the stock will move on any given day, especially in the short term. Stocks or markets can rise as easily as falling next week. Smart investors buy stocks when they are cheap and hold them back from time to time.

What drives this behavior: It can be fear or greed. Frightened investors may worry that stocks will fall before next week and wait, while greedy investors expect a decline but want to try to get a much better price than today.

  1. ‘I was tired of these stocks, so I sold.’

This excuse is used by investors who need excitement from their investments, such as action in casinos. But smart investing is really boring. The best investors sit in their stocks for many years, allowing them to accumulate profits. Investing is not a quick game, usually. All profits come when you wait, not when you trade in and out of the market.

What drives this behavior: the investor’s desire for excitement. That desire can be driven by the mistaken idea that successful investors trade every day to make huge profits. While some traders do this successfully, even they ruthlessly and rationally focus on the outcome. For them, it is not about excitement, but about making money, so they avoid making emotional decisions.

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