It is reported that only 10% of people who invest in the stock market win or become successful, the other 90% lose their money. Losing money in the stock market is normal, so this means that you will most likely lose money at one point or another.
The question that remains on people’s minds is where does the money go after you lose it. For starters, you don’t lose money, you lose stock value, because you can’t earn money if you don’t sell the shares you own. Stock prices are not the same as money; usually an estimate of the value of the stock.
When a company goes public it releases a number of shares which are valued at a certain amount, once you buy the number of shares you can afford, you become part of the company.
When the company’s earnings are good, the market value of the stock goes up, meaning that when you sell the shares you own, you will make a profit. Vice versa, when a company’s income decreases due to certain factors, the value of a stock will decrease so that the sale of the stock will not generate a profit. That’s how the stock market works.
Company Not In The Picture
Once the money runs out, the company that issued the shares doesn’t get any money. The primary market is the initial transaction between the company that issued the shares and you as the buyer. This is the only time the company can receive money from you. Although, the company can buy back all the shares, you have the right to sell the shares at any time you want. The company does not receive anything from the shares whether the market value is good or not.
Is the Money Lost?
Regardless of whether the market appreciates or depreciates, it is the forces of supply and demand that determine whether you will lose or gain money. Back to the question, once you lose in the stock market, the money is not lost; the value of a depreciating stock that may be lower than its original price.
Reasons Why People Lose In The Stock Market
Before you can understand where money is going in the stock market, you need to understand why people lose first.
People lose money due to unpredictable market values; once the company is negatively affected by internal or external factors, the company’s income goes down, then the market value of the stock goes down.
The timing of the investment in the market affects the gain or loss of the value of the stock; investing during a recession is rewarding, you will have your stock at a bargain price.
Being too hasty; it takes patience to be able to get your investment back in the stock market. Most new investors usually trade in haste because they want to make money fast. The stock market does not provide fast money. You have to develop patience if you want to make a profit.
How to Avoid Losing Money
It is important that you learn how to avoid losing money in the stock market. This way you will ensure that you get your profits back. Below are tips to help you avoid losing money;
1. Identify And Observe Market Phases
Market phase refers to the trading time or trend of the stock. If you are unable to understand the phases of the market, you may end up investing using the wrong indicators. Therefore, it is important for you to observe the market phase. Don’t buy a stock based on its past performance. The value of the stock is based on economic performance. This means that the stock may rise during certain periods of time and fall at other times.
2. Take Emotions Out of the Equation
In the stock market, if you want to make money, you trade first and ask questions later. If you have a rising stock, sell it in a flash and don’t argue about it. This is because the market is unpredictable and stock values can depreciate quickly. You also have to be patient, don’t get out of the game because you lost money in the first round. That’s the nature of business.
3. Observe Before Trading
If you are new to the stock market, it is recommended that you learn the basics before investing. This will help you avoid errors that can cause serious problems. It’s also a good idea to observe stock trends before buying or selling stocks.
Losing money is inevitable in the stock market. What matters is not the fact that you lost money or where it went, but how to avoid the mistakes you made earlier.