Why Investors Lose Money In The Stock Market

6 reasons why I believe people lose money in the stock market PLUS a trade idea

Aug 18, 2022

“We’re so busy watching out for what’s just ahead of us that we don’t take time to enjoy where we are.”
-Bill Waterson (No idea who that is, but I like the quote)

Thank you for reading The Tobin Report. This post is public so feel free to share it.

This week’s edition of The Tobin Report might be timely as markets are due for a corrective pullback. This isn’t MY opinion..this is my chart’s opinion. (Although I tend to listen when my chart talks to me).

This doesn’t mean it will happen tomorrow, although it could…but we’ve seen such a big rally in this bear market that we will most likely see a pullback. A BIG pullback.

For instance, here is the chart of AAPL. I like Apple as a product, so don’t get mad at me. It’s just over valued. The P/E (price to earnings) is 29! Holy Jesus. This means the price of the stock is 29X what it is earning per share. Good lord. At the recent low it was trading at about 21 P/E. This assumes their earnings don’t get repriced to the downside, but that’s for another day.

Back to the chart below.

AAPL, among many other companies in the Nasdaq have charts like this. You can see the green arrows where price has respected the overhead resistance levels. In this instance, we have a confluence of resistance where the odds are in favor of a pullback.

Is this 100%? No.

Is it probable? Yes.

And for that…I just shorted AAPL. Boom.

And Now For Your Regularly Scheduled Program:

6 Reasons Investors Lose Money In The Stock Market

1. Following the herd

Don’t just buy a company because everyone is talking about it. FOMO is real and can get the best of you. It’s okay to miss an opportunity. Once everyone at work or the gym is talking about it, it’s already a crowded trade and the big gains have already been made.

When everyone is on one side of the boat, it’s time to get on the other side before it rolls over. That said, if you DO follow the herd, make sure you have an exit plan, take profits when appropriate, and don’t be greedy hoping it just keeps going up. You want to sell before the herd does.

2. Lack of patience

These days, patience is rare when it comes to investing. Everyone wants to get rich quick. Oftentimes the difference between a winning trade and a losing trade is time. Give it time to play out and don’t sell too early because you didn’t double your money in a month. Markets don’t go up in a straight line.

3. Chasing price

Never chase. If the stock you were interested in has already run up and you didn’t get in the trade, let it go. It’s tough to watch the trade you “should have been in” continue going up, but wait for it to come back to you. Chances are it will. Most price runs come back and retrace the breakout levels.

See the chart below. This is the daily chart of one of my gold development and exploration companies, Lion One Metals (LOMLF). Price took off over 30% in just 5 days. As you can see in the chart, if you waited a few weeks, you were able to get in after “missing the boat”. This happens all the time.

4. Not keeping emotions in check

People tend to freak out when stocks drop in price. It’s been a rough last few months for many investors. I get it.

If you understand your investment and the underlying thesis has not changed, a drop in price should excite you. It means the company you love just went on sale.

Here is a chart of my favorite uranium producer, Cameco (CCJ). As you can see on the daily chart, price dropped over 30% from $26.54 to $18.03 in a few weeks. That’s a pretty brutal drawdown! However, this was a gift from the gods above, lol. I could not be more confident in the uranium thesis so my emotions were completely intact. In fact, I bought more. As you see it paid off. Over the next three months, price rose by 75%. Boom. Hang in there.

Volatility is normal and day to day fluctuations are expected. In fact, a pullback in price is extremely healthy, allowing for consolidation and accumulation before the next move up…assuming you are invested in the right companies.

If you get caught up in the day to day movements, remember to zoom out and look at the weekly or monthly timeframe. This often helps in keeping emotions in check.

5. Wanting to break even after having an unrealized loss

Many investors find themselves in a losing trade they know nothing about and hoping the stock goes back up. As I’m sure you know, hope is never a good strategy.

“I’ll sell once I recoup my losses and get to breakeven!”

That is a horrible investing strategy. Instead, either sell for the loss and move on or add to the position because you believe in the fundamentals. If your strategy is based on price alone, you will be destined to lose money. The price of the stock rarely represents the true value of the stock.

6. Selling at the wrong time

Many investors hang on to trades too long. This is true for both winning positions as well as losing positions. I have a rule that if I’m up 100% in a position, I sell half and let the remaining half play out. This now becomes a 100% risk-free investment. However, many people don’t take profits when they have a winning trade and wait until the stock has come back down before deciding to sell! WTF! Take profits! I see this all the time. It’s okay to take profits. In fact, taking profits is the NECESSARY step to building wealth. Don’t wait too long to sell.

New Swing Trade Idea - PEPSICO, Inc (PEP)

This week’s swing trade idea is based on a chart pattern.

As you can see, Pepsico, Inc (PEP) has broken above its trading range of $154 to $177. If this holds, price will run higher. I purchased just above the breakout near $177 so this is already in the money.