Investing in the stock market is not for the faint of heart. While big names like Warren Buffet and Carl Icahn can make stock trading look like a walk in the park, investing in the stock market is actually a very complex endeavor that is difficult to grasp even for seasoned investors.
Many have thrown their hats into the stock market arena but only a fraction emerged victorious. While it may be tempting to think that you’re special and you know “stuff,” the fact is there will always be someone who knows more than you. Don’t believe me? Let’s look at hard numbers.
In a study conducted by the North American Securities Administrators Association, they found that only 11.5% of traders were making money. A mere 18.5% were breaking even, and 70% of investors lost their money. That’s not a very encouraging statistic.
So, how do you avoid becoming part of the 70%? By doing your homework and not diving in blinded by the promise of a fancy pro trader’s lifestyle.
Here are some stock investing secrets that brokers and stock picking subscription services will not tell you.
1. There is no winning formula or secret algorithm that can guarantee profits or returns.
The stock market is fluid and evolves every day. This dynamic nature of stock markets forces traders to constantly revise and adapt their investment strategies to ever changing market variables and conditions. Simply put, trading is about the numbers and just like gambling, the odds are stacked against you.
2. Stock trading requires patience, capital and risk tolerance
According to industry figures, more than 70% of traders quit within the first 3 months. This goes back to the study cited above. With 7 out of 10 traders losing money on the stock market, it’s easy to see why many don’t last in this competitive trade. If you want to do stock trading full time, you need to be patient and you need to have capital to work with. Some experts say you need at least $1 million to make meaningful investment. Your risk tolerance also plays a big factor in your long term success. Would you be willing to risk more for the probability of a bigger return? That is one of the many questions you need to ask yourself before you start investing.
3. “Hot tips” and “insider info” are just ploys to sell you a service or a subscription
If someone had a winning strategy or insider info that could net big returns, they wouldn’t be wasting their time writing about it on some eBook, online course, investment website or broadsheet. They would be exploiting it to the hilt.
No one really knows where the market or a specific stock is headed tomorrow, next week, or next month. There may be indicators and significant events that will help traders forecast trends but they are not foregone conclusions. At best, all these tips and analyses are simply “educated guesses” by someone really smart and experienced. It’s a good idea to pay attention to them but it would be foolish to bet all your investment money on them.
You may have started reading this article expecting to find some “well-kept investing secret” that will make you the next wolf of Wall Street. Unfortunately, there is no such thing. The stock market is like gambling, it’s a game of chance, and you can only win if you know your odds and play the game accordingly.