Are You Losing Money in the Market Due to One of These Reasons?

Humans have a knack for doing what they know over and over again. For example, you may have the same type of investing strategy you've used for 10 years. But have you ever stopped to consider whether it's actually working for you? Maybe fees have eaten you alive. Maybe you haven't earned as much as you'd like. 

It's always good to brush up on the good ol' basics. Take a look at a few reasons you might be losing money in the market. 

Reason 1: You ignore market cycles and dismiss global events. 

You probably didn't "ignore" the pandemic. In fact, investors turned out in droves and young investors have entered the market in record numbers during COVID-19. However, do you always consider business and economic cycles? The market has business and economic cycles, and people often lose money by ignoring them. Understand how a downed economy, declining job market and how economics play into the mix.

Investment markets also rise and fall when a specific event occurs. For example, The S&P 500 index dropped 34%, 1,145 points, at its peak of 3,386 on March 23, 2020, due to the COVID-19 pandemic. However, if you know that if you sat it out and kept your money in your investments, you know that a year after the COVID-19 emergency hit the United States, stocks gained 79% from their previous lows.

Reason 2: You get emotional.

You can spend your whole life studying behavioral finance, a field that explores why people succumb to fear, greed and herd mentality when investing. Herding mentality in investing means you go along with the crowd and neglect to evaluate all the information about the company (including overvaluation) before you invest.

Take the GameStop (NYSE: GME) phenomenon as an example. When retail investors used Reddit as a vehicle to boost the stock price of the video game retailer, Wall Street hedge funds that had heavily shorted the stock lost millions.

Despite the not-so-impressive fundamentals of the company, investors bought GameStop, cementing herding behavior through social media. Over a quarter of American adults say they bought GameStop or another viral stock in January, according to The Harris Poll.

Following the news with your investment dollars can put you in a pickle, so do your own research and make decisions away from the crowd. 

Also, setting greed and emotion aside helps you maintain the discipline needed to trade. Do you choose a strategy and stick to it? Reduce the size of your position? Learn all you can? Naturally, you can pay big bucks for experts to teach you how to eliminate all emotion from trading.

However, whether you opt to hire an expensive expert to help you, there's no two ways about it: Bringing emotion (and greed) into trading usually sends you on a spiral of chasing your tail and losing money in the process.

Reason 3: You treat investing as a get-rich-quick scheme.

I know we just discussed trading, but the truth is, unless you're a successful day trader (you win more than you lose) most successful investing (not trading — two different things) involves a pretty boring cycle of invest, invest again, rinse and repeat. 

When investors try to outsmart the markets with frequent buying and selling (also known as trying to time the market), they usually lose. Timing the market involves buying and selling stocks based on expected price fluctuations. If they sell at the right time, they can make money.

Was 2020 the lone exception? No. When economic downturns hit, you have a better chance of profiting. However, some companies go down in a bear market and never come back up again, so nothing can take the place of great research. 

Is it boring to invest in passive investments? Sure. However, common wisdom prevails over and over: If you invest for the long-term, you'll make more than if you consistently buy and sell, buy and sell (remember, you pay fees each time you take an action on your account!).

Reason 4: You skip diversification.

Many investors fail because, well, the companies they invest in fail as well. You might want to stop investing in single stocks and attempt to diversify your portfolio. This way, you lessen your exposure to risk by choosing various types of investments or asset classes. 

For example, you may choose to invest 10% of your portfolio in bonds, 80% in stocks, and 10% in real estate. Obviously, how you diversify your portfolioyour level of risk will depend on .

Do you need to sidestep straight stock investing and start buying bundles of stocks, such as ETFs?

Reason 5: You think research is for sissies.

Think about this. Why would you thoroughly research the next lawn mower or grill you buy (I think my husband spent upwards of 60 hours investigating our last grill purchase) but skip the detailed research you need to do on companies for investment purposes? 

You want to consider the company as a whole: 

• Current management
• Financial statements
• Earnings growth
• Strength in the industry
• Debt-to-equity ratio
• Price-to-earnings ratio

You want to determine the current and future worth of a company by looking at every single part of a business's management, its capital structure, future earnings and the market value of its assets. Look at every metric you can find to determine whether you should invest.

Finally, ask yourself whether you understand the company. If you don't understand how the company works, consider walking away. 

Evaluate Your Processes

You could come up with dozens of reasons why you lose money on your investments, and you might not come up with a single bullet answer — many reasons could cause you to come out on the bottom when it comes to investing.

Educate yourself on as much as you possibly can about your investments, the companies you invest in and your overall strategy. These can help guide your investing success and decisions.