Stock Market is a place where people buy and sell companies at market rate. Whenever you want to buy a stock you can just buy at single click at your fingertip.
Many people lose money in the stock market because of their impatient behavior and lack of proper systematic knowledge about companies and the stock market.
Who Lose More Money In The Stock Market ?
The Market some times shows more volatility than average due to events or any sudden new or changes in the rules.
There are many participants in the market who provide liquidity. The First one is traders, they buy and sell stocks fast. Second is investors they generally buy and hold stocks if there is something bad happens with the company then only they sell their holdings.
But sometimes investors show interest in daily news and activities and become impatient and sell stocks. If you’re an investor then you must understand your chances of losing money in the stock market with time.
Basically traders lose more money because they generate commissions for brokers and their profit is directly transferred to brokers than investors.
Chances Of Losing Money In The Stock Market As Investors ?
When you invest $100,000 then your chance of losing the money if market crashes from that day is 46%. This percentage is different for one month of time horizon, and that is 38% down by 6% from one day.
Similarly when you stay invested in the market for one year then it will be down to 26% only. No matter how strong your company chances of stock going down within a year are high.
When you started invested dividend money also the probability of losing money is less. For 3 years there is only a 16% chance i know 16% is also very high for you because other assets are very safe they don’t provide you negative returns on your investment.
With 5 years and 10 years your investment grows with time and generates higher returns than other asset classes. that’s why your possibility is 11% and 6 percent respectively. Investor earn money through gains and dividends.
Gain Require To Cover Loss From Stocks
Once peter lynch said, “Selling your winning trades and holding your losing holdings are the fastest way to loss money in the stock market”.
Peter Lynch also gave a chart for required gains to cover from a loss. If a stock is down by 50% then you need almost 100% gain to stay at the same price.
For example, you buy Amazon stock at $100 but due to some reason stock falls to $50, it is a 50% fall from $100. Currently stock at $50, from this level stock goes to $100 again then it is a 100 percent gain from that price.
Similarly when the stock fall to 80% then it requires 400% gain on your investment to cover that loss and it’s hard to cover that. So invest wisely.
When prices fall then the percentage also decreases suppose 5% of $1000 is $50 but when the stock falls to $500 and when we calculate the percentage it is $25 that’s why the stock needs more gain when it falls more than 25%.