The 5 Simple (Yet Overlooked) Reasons That Most Investors Lose Money Year-After-Year

Hey you!

Yes, I’m talking to YOU...Not the millionaire hedge-fund manager with more yachts than there are days in the week.

I’m talking to you and the other 54 million U.S. based self-directed investors dreaming for a better future and a nowhere in sight “retirement”.

Over the past fifteen years the stock market has experienced two major market corrections -- first in 2001 with the tech bubble and the second in 2008 with the massive housing bubble.

Along with these market corrections came the loss of trillions of dollars in American wealth and drove everyday investors out of the market and caused many sleepless nights.

Dating all the way back to the now infamous “Tulip Mania,” it’s apparent that these market corrections are anything but new. It’s really just the same old song and dance.

So the question remains:

“Why is it that everyday investors continuously lose their money (in fantastic fashion) when investing into the stock market?”

Don’t get me wrong, I’ve seen some truly remarkable stories of Mom and Pop investors who’ve successfully changed their lives from investing.

(Which Matt Shfrin of Forbes detailed in his recent book – The Warren Buffetts Next Door)

But let’s be honest…there’s a reason for the cliché, “if it’s too good to be true, it probably is.”

And it doesn’t stop there. Not only does the majority of Mom and Pop investors lose their money in the markets, but most so-called “professional” money mangers do too!

Five Reasons Your Mutual Fund Probably Underperforms The Market

While running, I’ve made it a point to find out why this is the case. Why do the majority of people who invest in the market continue to come out losers?

After speaking with over 1,000 investment experts (some real professionals, others not so much), I’ve finally narrowed it down to five simple reasons.

Without further ado, the five simple (yet overlooked) reasons that most investors lose money year-after-year…

1. Lack of StrategyHave you ever bought a stock only to see it quickly drop by 20% and think to yourself, “well if I thought it was a buy before, it definitely is now!”

Or have you ever watched one of your picks double in price but rather than take profits you try to squeeze a few extra percentage points out of it? Then the next morning you wake up only to find that your investment is in the red after a bad earnings call?

You need a strategy.

Buying and praying is a sure fire way to lose a lot of money.

Find a strategy that makes sense for you. If you have a 9-5, a strategy that requires you to trade several times a day is probably not the right thing for you.

Find something you are comfortable with, that let’s you sleep easy and night and that fits with your long-term goals.

2. Diversification

This is one of the biggest pitfalls when someone calls me up that just lost 50% of their portfolio in ONE STOCK!

Here’s how it usually plays out….

Mr. Investor caught wind of a “hot” stock from his friend/doctor/brother/neighbor that is about to blow up and be the next Microsoft/Google/Facebook.

Mr. Investor goes home and does a little bit of research. This company seems poised to go to the moon.

So Mr. Investor places a big bet because this is his chance to make live large.

With over 50% of his portfolio vested, in-this-one-stock, Mr. Investor starts to think what he will do with all the profits raining down on him like beads in a Mardi Gras parade.

But then it happens.

Some piece of news/report/regulatory filing comes out that takes the stock to mere pennies and Mr. Investor just lost it all.

Diversification is an extremely important part of investing. If you are betting your entire portfolio on a couple of stocks, you are poised to lose it all.

3. Emotion
The graph below from one of my favorite blogs,, says it all:

Here's a look at the classic cycle of investor emotions: Sentiment Cycles within the Market.

Many investors allow their emotions to take over their trading, which takes them out of play when the big opportunities present themselves.

Emotions get in the way of strategy, and without strategy, you are lost.

What stage of emotion are you currently in?

4. Discipline
“We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.”–Jim Rohn

There is an email that goes out to customers on our education platform,, that asks new members “what’s the number one investment help we can offer to you?”

87% of the time the answer says discipline.

There are far too many distractions in this world that can get in your way of successful investing.

Tune out the noise. Stick to your guns (which starts with defining a strategy) and invest with military like discipline. Even though it might seem easy to abandon your strategy, remember that it is all or nothing. If you do not stay true to your strategy, it will be near impossible to take any gains from the market.

5. Trying to Do it All By Themselves

I have never met one single professional that didn’t learn from someone.

Do you think Michael Jordan figured out how to play basketball all on his own?


And investing is no different. You get better with time and practice.

The best strategy for beginners is to stand on giants’ shoulders. After all, they have gone through the hardest part already – starting.

Posted to Learn How to Use Marketfy P… on Apr 24, 2014 — 1:04 PM
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