3 Ways Average Investors Fail, Over And Over Again

The investing public has been called ‘sheep’. A term used to describe those who follow or are herded around mindlessly. Over and over again, we see average investors flushed out of the stock market when panic hits and coaxed in when euphoria is at its maximum. It has caused many average investors to swear off investing forever (or so they say). Just like after the 2008-9 financial crisis, many lost their retirement savings and said they would never invest again. Yet as the markets rose year after year, they felt left out. Finally, when the markets were near their all-time highs, these same investors stepped back into the stock market, the FOMO or fear of missing out just too much to handle. History repeats itself once again. The markets flush on panic and those investors remembering the pain from the previous collapse and exit the stock market, taking losses again. This repeats itself over and over again. Every few months, every few years…In many cases, this creates a transfer of wealth from the average investor to the big ‘smart’ money.

So how do investors avoid this? First, investors need to realize they are competing with pros, mega institutions and even algorithmic computer programs. So if an average investor is not willing to put some training into it, they should absolutely stay out of the stock market and tuck their money under their mattress. If they are willing to dedicate some time and focus, then there are things that can be done and profits to be made.

1. Train yourself to think the opposite of everyone else. Emotion is your enemy so kill it now. It is not something that will happen overnight but a trained investor can keep logic in the forefront. When the euphoria gets too great, sell into it or hedge your positions. Better yet, sell into it and even take on some short positions if you are alright with the added risk. On the other side of the coin, when fear and panic set in, begin to think of it as a buying opportunity. Emotion is the devil of the average investor but it has been used for centuries to take their money. Big boys and institutions understand they can easily push the little investor who panics out of the market with the right news stories, media coverage and stock market drop.

2. Learn to read the charts. Many average investors do not believe in technical analysis. This article is not proclaiming that you need to learn MACD, RSI or any other crazy technical tool. Instead, simply look at the chart of the S&P or any stock and find previous levels where the market/stock had a significant bounce or a major high from years ago. Use these tools in conjunction with logic when emotion is at its height for everyone else. For example, when you train yourself to start thinking about buying from a major sell off. When there is palpable fear in the markets, start looking at charts for a level from months/years before where the market also bounced. Buy solid companies that have been around for decades. Doing this creates two factors that give you a higher percentage of success.

3. Lastly, ignore the media. They are probably the worst culprit for perpetuating fear and greed in the stock market and losing average investors money. The biggest thing to remember is that the media is there not to help you make money, but to sell advertising. The way they sell advertising space? By getting you to watch their TV station or read their news articles. Any time there is fear and panic, they are going to play into it and push even more fear and panic. This gets investors glued to their TV’s and ultimately makes the news station more money. The same thing when a name brand stock continues to make new highs or the market continue to push higher. They are going to pump the average investor up, make them think it is the greatest, most exciting, easy to profit market ever. The bottom line is, the best investors in the world pay no attention to these hype media outlets. They look for facts and avoid the hype. Average investors need to do the same.

Ultimately, average investors need to become the top 1% of investors. To do that it does take discipline and study to control your emotions. But heck, there can be thousands if not millions of Dollars on the line. Why wouldn’t you want to spend a little time learning and becoming more disciplined? Once average investors are aware of the above mentioned points, their ability to understand, cope and navigate the stock market is greatly improved. Success and profits follow.