Why investors lose money?

Why investors lose money? 

I found that a lot of people misunderstand or underestimate their risk of risk. Therefore, I always want to share why people lose money in the financial markets the root cause. It can be a stock, property or any asset class. The reason is the same - they buy high and sell low. 

Buy high, sell low 

While we all know that money is to buy low and sell high, most investors do not realize that to do the opposite. For example, very few people are interested in the real estate market in 2004 or 2005. As prices rise, in 2007 and even more so in 2012, investors began to pour their savings in property. This is to buy low and sell high you? For them, it is entirely reasonable, as they share their reasons for buying property (although studies have shown that we first of all decisions and reasons): 

Real estate prices go up forever 

Singapore is a small country with very little land supply 

The Government has said that China's population growth and migration 

Rich Chinese from the United States a lot of liquidity will push the price, I bought my kids, because they will not € ™ t be able to afford a house in the future. 

They think you are a fool if you do not buy the property. It is amazing to see many Singaporeans share a common insight into the future. This is because if they pass the same I do not have a crystal ball gazing € ™ t get peers. I do not know how the future will unfold. Property prices can go to any one direction. 

But I do know is that I felt a € œirrationalexuberanceâ for? In the current real estate market. There is a certain risk increases. Looking in the newspaper, I saw countless property launches, courses, advertising, etc., I think this is too wonderful time will not last forever. I clearly remember, after peaking in 1996, property prices have crashed it took 12 years, in 2008, restored to the same price. People will say "œthis time differentâ €? Sir John Templeton said that these are the four most expensive words in the English language, I believe that the market has cycles, history will repeat. 

I saw the same stock market boom in 2007. In the 2008 financial crisis, the stock market crashed from a peak of 50%. How many people have lost money? Who lost the most money are those who buy near the top of the market. They were encouraged in everyone quick money. Subsequently, they sell their shares at a low price, because they can not put painful. They follow the "€ œbuy high, sell LOWA? Mantra, they still think they are rational investment decisions. 

Buy low and sell high is the culprit in our sense of greed and fear. Every day, whether we like it or not, we do a lot of decisions based on emotions. We chose lunch because we â € ~ feelâ € ™ like to eat certain foods. We bought a certain design and color of clothes, because we â € ~ feelâ € ™, which is good. â € ~ likeâ € ™ do certain things, because we are â € ~ feelâ € ™ happy doing them. We are not rational, because we think we are. Make us very bad mood because of greed compels us investors buy when prices are high and sell low fear compels us.

 Therefore, buy low and sell high profitability will be very difficult to do. We all know to control weight, eat less and exercise more. It is easy to understand, but difficult to achieve. Property prices in the stock market is still low, few people interested. Most people would rather go shopping, watching movies or enjoying their hobbies, rather than look at the market. However, they soon became interested when they hear the stock price has gone up, people make money. Buy high and sell low repetition cycle. 

Investment is a path-dependent process - not just look in return 

I'm in the talks, I usually suggest to the audience permanent portfolio (PP) as a solution to deal with their tendency to buy high and sell low. However, some still missed the point, focusing on the wrong aspect, PP. PP is decent, the annual growth rate of 8%. Some are not satisfied with such returns. Their portfolio with stocks, you can return each year about 10%. Fatal error to find a coin has two sides - the potential profits. They did not look at the potential loss. Stock portfolio can withstand up to 50% of the losses from the peak. How many people can live with such a big drop, no sales in fear? Beautiful PP volatility is very low, and is based on the linga Germany HOOI € ™ s 10-year backtest PP, there is only one in 2008. In the meantime, STI peak-to-trough compared to the extraction of more than 50%, PP 7%. Therefore, most investors will not be scared out of position and PP. Some people choose to go for a higher return, but no stomach to extract risk appetite, will have sold all of the stock portfolio at a low. Therefore, he will never achieve a 10% annual return. 

The important point to remember 

If you do not succeed, you must have in your investments to reflect if you have to buy low and sell high. You will need to learn to reverse this process, so that you can turn your destiny. Please keep the following pointers, when you invest: 

Volatility can make you very rich or very poor. Make sure you can stomach the roller coaster. 

You pay a higher price, the smaller the price of a controlling stake, there will be tanks, as well as a higher chance that you will buy high and sell low. 

Take a look at the greatest risk or downsizing and higher returns. You will not have any problems when your portfolio performance. Think about how you would react if your portfolio value halved. You'll sell it? If you prefer, you need a lower portfolio volatility and extraction. 

In addition to patience, long-term investors need to overcome the fear of loss, and to sit tight in the price of cans. Otherwise, they will never achieve the long-term average return.