Most people lose money in the stock market

by Manshu on August 2, 2010

in Articles

I was trying to look up something, and this Google auto-suggest intrigued me. Here is a screen-shot.

image

Really? stock market and virginity?

While I have no interest in knowing when most people lose their virginity, I do have a lot of interest in knowing if most people are in fact losing money in the stock market.

Personally,  I do believe that most people lose money in the stock market, but I don’t have any data to back it up. I loosely define “most” as more than 60%, and my sample set is the people I have known over the years.

I created a poll to test this out, and if you have a few seconds – please answer this small poll located at the bottom of the right sidebar of the site.

You have to answer with a Yes or No, to this question: “Have you made money in the stock market?”

It is anonymous, so no one will know your answers. Please vote now, and in the meantime I will look for other information around this.

{ 20 comments… read them below or add one }

Patrick August 3, 2010 at 8:41 pm

An interesting question, does this include the total amount of money increased in my 401k over the last ten years? If you take out my employers match then I have lost money in the market from 2000 through 2010. I have more money in my account now than I did ten years ago, but it’s because I keep putting money in every month.

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Manshu August 4, 2010 at 4:15 pm

I was just thinking about the losses people make in equities and was wondering how many have made any money at all, or not lost money. So, I kept the question simple and ignored time frame, market cycles etc.

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Patrick August 4, 2010 at 8:55 pm

If you only count equities then I am up 6% from my own stock picks. This is mostly due to me picking companies that while not considered to big name blue chip companies they have continued to pay dividends each quarter which have allowed me to reinvest and increase my holdings.

The biggest problem I have is with the fees associated with buying stocks. With an account with TD Ameritrade it costs $9.99 to buy and sell stocks. So, if I put $100 a month into the account and let it sit in cash until I receive my quarterly dividends then I may have anywhere from $400-600 to invest. By waiting till that time I make one purchase a quarter.

My logic, if I try and buy a stock with $100 and the cost to buy is $9.99 I am spending 10% of my money just on fees, which means I need to make a 12% gain on the stock to essentially break even, and with most stocks not really gaining a steady 3-4% a month it might take 6-8 months to break even. That is just not worth the effort.

It really seems like the market is only set-up for people with lots of money already, the little guy will never get ahead due to the fee structure of most investment banks/brokers. This is why mutual funds and ETF’s are so popular and the better choice for people with less than $1,000 to invest, otherwise you are just making someone else money for doing literally nothing. Can anyone tell me what exactly TD Ameritrade is doing with my $9.99 per trade? Why is there a cost at all? Why can’t I trade for a $1 a trade or less? I would be curious to see how much money people lose just in fees each year.

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Brian October 4, 2011 at 7:11 pm

At the end of the day, there are people who are doing things. Of course, TD Ameritrade has to cover their costs of running a website, tech support, their buildings… all the normal fixed costs of a business. They also have to pay traders who, when you give the order “buy this stock,” find another trader representing someone who has given the order “sell that same stock.”

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Pallavi August 5, 2010 at 6:42 am

I have made some money. I invest a very modest amount (couple of k) in stocks that are own-picked. Rest through MF SIPs. Both have made about 20% or so total over the years (investment timeline about 4-5 years).
Normally this is not what people mean when they say they ‘made money’ .. and normally by making money in stocks people mean – day trading. I do neither. IMO ; MF SIPs seem the best option considering there’s no work involved.
Hope this helps.

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Tony August 8, 2010 at 1:51 am

A very interesting question, and a difficult one to answer! I believe the true answer for most people will actually be “Yes” and “No”.

I answered “Yes”, having recently taken better control of my finances/investing.

I lost money in 2008/2009 (far more than I should have done) because my money was invested by “professionals”
(or as we know call them “greedy incompetents”, and that’s the polite version!). Since then, I have taken full control, learnt as much as I could, made ALL the novice’s mistakes, but made good all my losses and am well in profit.

It helps that there is so much advice from helpful people such as as Manshu.

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Radhika August 12, 2010 at 2:26 am

I have lost money too. But made more money than I’ve lost. My portfolio consists of penny stocks, leading BSE stocks, NDTV profit recos and sometimes SMS recos!. Not sure who sends out these SMS recos, but I did make money in it, sometimes to the tune of more than 20% within a month’s time. As I’m not an impulsive seller, if a stock’s price goes down, I would average it than selling for loss.
Anyways, Manshu, looking forward for tips from you to choose the right stocks to make money, in a steady pace.

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Manshu August 12, 2010 at 5:31 pm

I stay away from most of the things you mention here, especially penny stocks and hot tips that come from strangers (or anyone for that matter).

The market has been up so the going is good, but when the market tumbles these type of shares take the worst hit, and hurt investors the most!

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Radhika August 12, 2010 at 11:31 pm

From my experience, alls stocks get hit whenever there’s a downslide. So it doesn’t matter as long as your horizon is longer. Also, I make it a point to exit penny stocks when I get 20-30% returns. And I invest this in stocks whose business is doing good.

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Manshu August 13, 2010 at 6:49 am

Penny stocks or other stuff that has risen disproportionately like the real estate stocks last time around get hit so badly that they never recover or take very long.

An interesting example is Japan’s Nikkei which I think was about 39k in the late 80’s and is ~ 9200 these days.

Some things get harder than others, and IMO penny stocks, and other stuff with high beta is invariably in this list.

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porter smith August 30, 2010 at 9:40 pm

Yes I have made money but I turned around and lost it all, starting in April. I think the market is rigged and that’s all there is to it. I have alot of money and have made a lot, but if you don’t know the timing of the market (and no one really does), you will lose all of your gains and even more…. and then you have to bust your butt only to break even. The market is RIGGED, no two ways about it. I only wish someone was smart enough to crack it. I have heard there are books that explain it, but I think there is an abundance of smooth operators on the street who make certain that NO ONE WINS!

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Nikhil Rajput September 17, 2010 at 12:35 am

Well I would say, ‘Patience & Fundamentals’ is the mantra for making money in the stock market. Patience, because not even the best of finance experts can time the market precisely every time. The key to really making money is to hold on for as long as you can – endlessly in fact if you really want to see the value go up exponentially. But along with this patience, it’s the fundamentals behind the stocks that you are trying to hold on to which must go hand in hand. Some basic research and a little study about what factors to look at when making a buying and holding decision can only decide whether one makes or loses money in the stock market. As far as day traders are concerned, the ratio of losers will surely be much higher than the winners. I would suggest GEPL for their online trading services and professional advisory panel at http://www.guptaequities.com.

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kt November 8, 2010 at 5:45 pm

I have lost all my money on shorting stocks- yes I know for a fact the ask/bid prices are rigged to go higher as soon as the shorts get in. I have made money on longs, but seems to take forever to go up $1 dollar, as compared to a short that goes up $$$ without any catalyst. PCLN is case in point.
When a short gets underwater, they short more until the lower entries give in and the big money sells the shares back for a big profit. It’s a ponzi scheme. So don’t short. I called the State office that provides oversight for securities fraud and misconduct- they were helpful- tip , you need to know who is gaming the market, that is systematically driving up the prices 100 shares at a time on no news.

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Amar December 6, 2010 at 8:19 pm

I believe in holding on to stocks for a really long time! I had bought Infosys shares in 2001 and have only now sold them. I made a very good profit on that 🙂
The next time that I bought stocks were during the 2008-2009 period when the markets crashed. I got really good ones are throwaway prices and have again held on to them till now.
Day trading and holding on to stocks for less than a year is a strict no-no for me. I dont have the knowledge or the time for that 🙂

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Manshu December 7, 2010 at 9:54 am

Wow Amar – that’s the most amazing comment I’ve read for a while….hats off to you man!

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Arvind April 3, 2012 at 11:24 pm

i don’t invest a lot of money in self picked stocks (over the past one year only rs 5000 per month) but i have made money in that portfolio and it is up around 23% over past 7 years or so largely due to only 2-3 stocks. And i try to buy when the markets are falling like in the recent past. The rough monetary limit i have set for myself severely limits what i can buy though.
my total portfolio (‘nest egg’), which is mostly mutual funds, etf etc., is up around 17% from 2000 onwards till date.

i don’t know whether that compares well with the returns on any of the benchmarks but i think it is not too bad.

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Manshu April 4, 2012 at 4:22 pm

That’s pretty good I would say and the one question that I’m curious about is whether you sell these stocks in the intermediate term and then buy it again when it falls down or you just let it stay there for a while?

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Arvind April 4, 2012 at 5:27 pm

oh i don’t have a clue about this sort of trading or profit booking in stocks. i buy a stock which i think is fundamentally good and let it ‘ride’. If the stock falls, but i continue to believe that it is still a fundamentally good stock, i could buy more of it. One of the stocks i own (i own teeny-weeny amounts of most stocks) was languishing for a long time before it began doing very well. some of the mutual funds i own units in, i have held for a long long time.
i am trying to figure out for myself whether this sort of ‘buy and hold’ still works. many ‘experts’ say it doesn’t. but i’m aware of the risk.

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Manshu April 4, 2012 at 6:13 pm

I didn’t mean in a trading sense, but more in terms of a longer time frame. Example: I had a stock that I was holding and it doubled in a short period of a year and started fully priced. I sold the stock at the time but then when the cycle turned next time (in about one more year) bought it back again.

Do you see yourself doing this type of thing or in a similar situation you would have waited out?

I’m just curious since you’re successful at this and want to get a feel on your thought process.

Thanks!!!

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