Today, we will discuss a very simple topic regarding common investment misconceptions.
Retail investors not only lose money when the market is falling, but they also fail to make profits during the upward trend.
For example, in the recent market conditions, the index is still slowly climbing, but many retail investors have already started to lose money.
This is due to the market style and rotation shifts, which bring risks to retail investment.
In a market that is prone to fluctuations and rotations, the probability of retail investors losing money is definitely higher than the probability of making money.
There are many reasons for this result.
But essentially, it is because the size of the capital determines the direction of the market, which brings a loss effect to retail investors in this kind of market adjustment cycle that is prone to fluctuations.
To change this outcome, one must first correct some typical misconceptions in investment.
Misconception 1: Always wanting to achieve excess returns.The goal of a bull market is indeed to make more money, that's correct.
But there should be a bottom line, which is to perform roughly as well as the index.
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The part that exceeds the index is actually the excess return.
But wanting to get excess returns is not that simple.
It seems as if buying any stock at random could outperform the market, but the actual situation is not the case.
The real stocks that can outperform the market are often only about 30-40%, and that is the truth.
Outperforming the market means having more gains in trading, which means that there are people who underperform the market.
If the main funds are ultimately outperforming the market, then the vast majority of retail investors are underperforming.
Otherwise, how would this weighted average be balanced?
Excess returns are the goal, but not the bottom line. First, protect the bottom line, at least ensure a performance similar to the index, and then consider excess returns.Misunderstanding 2: Always thinking that one can catch the rotation.
Retail investors have great confidence in their ability to catch the rotation.
However, the reality is often particularly harsh.
Rotation, whether in a bull or bear market, is not easy to grasp.
Because the capital moves first, and then the market will respond, and retail investors can see it.
That is to say, retail investors catching the rotation is inherently a step slower than the main force.
In addition to the T+1 trading system, some main forces lure a group of people to take over in the morning, and then run away all the way in the afternoon.
In the end, the retail investors are left wailing in place, others are playing the rotation, while they seem to be played by the rotation, buying whatever falls.
Misunderstanding 3: Always thinking about buying leading stocks.
Stock trading is the trading of leading stocks, which is also a big truth.But buying stocks does not necessarily mean you have to buy the leader stocks.
Finding the leader stock takes time, and it's not something you can find out at the very beginning.
At the same time, once the leader stock emerges, there will also be second leaders, third leaders, position-occupying leaders, and so on.
In today's market structure, the phenomenon of leader stock changes is becoming more and more frequent, and it is not so easy to grasp the main line of leader stocks.
Many times, the leader stock stagnates, and the back row catches up, which is very common.
Sticking to the leader stock seems to make money, but in fact, it is not the case.
Switching between high and low, and the leader stock changing hands is very common, and this must be taken seriously.
Mistake 4: Always feel that the big bull market is coming.
Misjudging the level of the market, mistaking a rebound for a bull market, is also very common.
Always fantasizing about the bull market coming is a common problem for retail investors.Especially when seeing some information, it feels like the market is about to undergo significant changes.
In fact, the market is indeed developing in a positive direction, but it does not mean that a major bull market is coming.
Major bull markets occur once every seven or eight years, while minor market movements are quite common.
Mistaking a rebound for a bull market can easily lead to strategic mistakes, and there will be many instances of taking an elevator ride.
At this point, one must not make arbitrary judgments; it is better not to make a prediction than to make a wrong one.
Moving forward step by step is the real key. Regardless of the level of the market movement, the first thing is to earn the money that can be earned.
Myth 5: Always thinking that a method has been found.
Blind confidence is another important reason for losing money in the market.
If you make money, it may be because your method is correct, or it may be due to good luck.
When retail investors make money over a period of time, they tend to become blindly confident, believing that they have found the secret to getting rich.This is why there are many stock market gurus in a bull market, but they all seem to disappear in a bear market.
Some incorrect investment concepts, methods, and strategies also make money in a bull market.
But this does not mean that these methods are also effective in a bear market.
Once there is a sudden change in the market environment, many methods that people think are useful suddenly become ineffective.
If you invest for a long time using the wrong methods, the money you earn will eventually be returned.
Myth 6: Always like to trade frequently.
Retail investors like to trade frequently, which is actually a human nature.
When the stocks they hold do not rise, retail investors like to pursue some rising stocks.
Because they always think that only rising stocks have the main force.
Those stocks lying there are abandoned by the main force.In fact, in a bull market, no major player will abandon stocks, even junk stocks have major players behind them.
They just have completely different rhythms of rising, and there is also a reshuffling in the market.
If the stocks were to rise according to the small investors' thoughts, allowing the small investors to ride the main wave and then escape, what money would they make?
Most of the time, it's about letting the small investors take over the positions while they rotate and rise.
Mistake 7: Always like to bet heavily.
Betting heavily is not wrong, but for small investors, it is a poison.
The reason is simple, because the risk control is poor, and the probability of stepping on a mine is high.
To achieve good profits, it is necessary to bet heavily, this statement is correct.
But the premise is that there must be the ability to bet heavily.
The vast majority of small investors have not achieved outstanding results in the end, because most people do not have the ability to bet heavily.In the face of an uncertain market, it is not so easy to bet on one or two stocks and achieve excess returns.
More often, it is like stepping on a mine, and as a result, you lose to the market.
There is also a situation where you heavily invest in one stock, and then switch to another because it does not rise.
The result is that as soon as you sell, it rises, and as soon as you buy, it stops rising, because the outcome of chasing gains and cutting losses is just like this.
Myth 8: Always being greedy at the end of the market.
The last point is one of the biggest reasons for losing money, which is being very greedy at the tail end of the market.
In an uptrend, the most feared is the subjective judgment of the market phase, and making a mistake.
Retail investors are most likely to get off the market in the middle of the market due to doubt, and at the end of the market, they will add positions because they believe.
The acceleration at the end of the market will make many people lose their direction, thinking that a great opportunity to make money has come, and thus become greedy.
At this time, what you think about is not risk control, not securing profits, but making more money.Greed can easily lead to disorientation, making it difficult to see the situation clearly, and ultimately getting trapped at the peak.
Once a drawdown occurs, the profits accumulated through hard work along the way may be lost in an instant.
It is better to take profits when the opportunity arises, prioritize securing gains, and be willing to miss out rather than being afraid of earning less. This mindset will not lead to significant losses and prevent the feeling of being on a roller coaster.
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