THE #1 MISTAKE BEGINNER STOCK MARKET INVESTORS MAKE! #Best Education Page #Online Earning

 So today we're going to be talking about

the number one mistake investors make in the stock market,

and this is the number one reason

why people lose money when they invest.

I'm not going to try to tease you guys

with the information here,

and wait until five minutes in to tell you,

the mistake is following the market,

and following the trends of the market.

There's psychological reasons why we do this,

and you have to understand this, guys,

this is the basic reason we do this.

Our minds are programmed to do certain things

as a survival mechanism,

and these things are very useful to us.

When we go and we touch fire we realize,

oh, that really hurts, I'm not gonna do that again,

so when we experience pain we're like okay,

yeah, yeah, I'm not gonna do that again, that hurt my hand.

So that's a useful thing as far as a survival mechanism goes

because we know that fire hurts

and we're not gonna go touch that fire again.

But many of these survival mechanisms

that are hardwired in our brain

are utterly useless to us as far as investing goes.

In fact, they actually hurt us,

and if you guys want to learn more about this,

a lot of this information,

a lot of this stuff that I learned,

came from the book Unshakeable by Tony Robbins.

I have it linked up in the description below

if you guys wanna check that out,

but I highly recommend reading that

if you want to learn about the reason

we do what we do when we invest,

the reason most people lose money in the stock market.

But I'm gonna kinda give you guys a snapshot

of why this is, and the psychological reasons

why we follow the market.

So basically this is what the market looks like

at any point in time.

When it goes up in value we have demand,

so when there's a demand for a stock

or a demand for the market it goes up in value,

the actual price of that goes up in value.

So I know I've talked about this before

if you guys are familiar with my channel,

I talk about how the value of something

largely doesn't change on a short term basis,

yet the price of it changes very erratically,

especially with stocks.

So when there's a demand for a particular investment,

the price of it goes up significantly in value

while the underlying value really doesn't change,

it's just the price that changes.

So when there's a high demand for a certain investment,

the price gets pushed up into a point of greed or optimism.

Now, when there's a supply heading to the market,

when people lose faith in that stock,

it starts going down in value

into a state of pessimism, or fear,

while the underlying value or the intrinsic value

of that investment really doesn't change.

So you see this constant pendulum swing

of optimism and pessimism,

neither of which are sustainable,

and this comes from the teachings of Benjamin Graham

through The Intelligent Investor.

So I just want you guys to have this idea here in your head

of the market swinging to the point of optimism,

and then back to the point of pessimism,

and then falling somewhere in between,

understanding that what goes up must go down.

And even when something goes way down in value,

that's not a sustainable point

because people are going to buy back into it,

driving the demand up,

which is going to drive that price up.

So now I want to explain how people

make money in the stock market,

there's three types of people out there.

We have the bulls, we have the bears,

and then we have the sheep, okay.

So bulls or bullish investors

make money from rising stock prices.

They buy stocks when they're lower in price,

and then they sell them when they're higher in price.

This is called a bull, okay.

Now we have the bears, bears are people

who make money in a bear market,

or from falling stock prices,

so they're the short sellers.

They buy a stock when it's way up in the area of optimism

and they know that that's not possibly sustainable,

so they basically borrow shares at a higher price

and then they buy back those shares at a lower price

and they make money from the price difference

of those two things.

And then we have the sheep,

this is the majority of the market.

The sheep, basically they follow the herd,

and sheep get slaughtered.

Sheep are the ones who make no money in the stock market,

in fact most times they lose money.

That is because the sheep are following the herd

or they're following the actual trend of the market,

so you have to decide what you wanna do.

Are you gonna be a bear, are you gonna be a bull,

or are you gonna be a sheep?

But I hope you don't wanna be one of these sheep

who get slaughtered by the market,

because nobody wants to lose money

or be taught a lesson like that.

Most people get involved in the market

because they want to make money.

So I want to explain to you guys

why we have this tendency to be sheep.

Why do we have this, why are we pushed to follow the market?

There's a lot of reasons, so I don't want you to feel bad

or feel like you're an idiot,

this is just your survival mechanisms in place

and the things that the actual media pushes you to do,

if you're somebody who follows Wall Street news.

So first of all, why do we buy high?

Why is it that we see a stock going way up in value

and we go oh my gosh, we better buy into that?

Because if you ask anyone out there about investing,

if you say hey, could I get some advice

on investing in the stock market?

And they tell you to buy low and sell high,

you're gonna be like well (scoffs) you know,

that's obvious, of course, like give me some real advice.

But the thing is, nobody does this,

everyone buys high and sells low, okay?

And there's reasons we do this.

Why do we buy high?

The first reason is others are doing it,

and we are falling into that herd mentality,

or most of us anyway, so when we see our friends doing it,

when we hear about everyone buying into a particular stock,

we go oh, wow, wow, that must be a good stock,

I should probably buy into it.

So when we see others around us doing something,

we think it's a good idea.

We go, well, you know, all the people I know

are investing in this stock,

so I should invest in that stock as well,

so that's the herd mentality.

We follow what everyone else is doing.

The next reason is we like to celebrate.

The truth is, we like when things are going up in value,

we like to buy what's hot,

we like to buy the darling of Wall Street.

We hear about it, we're like oh my gosh, yeah.

Everyone loves this stock,

I wanna own this stock too so I can tell my friends

I'm holding shares of that stock as well,

so we can all celebrate about it and feel good about it.

So we like to celebrate.

As a result, we like to buy the winners, okay,

but the truth is, today's winners

are usually tomorrow's losers,

so if you're investing in a stock

and you're buying that hot stock

and then you go and you tell your friends,

oh, yeah, I own this stock.

They're gonna be like oh, yeah, you know what?

I own that stock too, we're all celebrating,

we're all having a good time.

But if you buy one of the dogs,

one of these stocks that is a loser right now,

everyone's gonna look at you like you have two heads,

they're gonna be like, wait, why are you buying that?

That's because you understand

that you need to go against the prevailing trend.

You need to buy low and sell high,

so you need to buy today's loser.

So we also have this tendency to follow the leader,

so we see what stocks are performing best in the market

and we buy those stocks, because those are the ones

that are the best of the best,

and because they're up right now

we think these are the best stocks to invest in,

but the unfortunate truth is,

many of those stocks are pushing into

a point of unsustainable optimism at that point.

Now, another reason we do this

is because Wall Street pushes this.

Wall Street pushes the hot stocks,

they talk about what stocks are up big today,

and those are the stocks that basically

get in front of us as far as news outlets go

and they're the stocks that are in our mind,

they're the stocks that people are talkin' about.

And as a result, they're the stocks

that people most frequently invest in.

Also, we have recency bias.

Recency bias essentially means

that recent events carry more weight in our mind,

so when we're in a bull market

and basically everyone's making money

and the markets are going up and up and up day after day,

we think that that is going to be

what happens in the future,

because that is what happened most recently,

and this is not true, because at any point

the markets could turn and start going down in value.

But because of recency bias,

because good times are more recent in our minds,

we think the good times are gonna keep on rolling.

The other reason we buy high is overconfidence.

This may not be overconfidence in yourself,

it could be overconfidence in someone else's ability.

So if you have too much confidence

in some Wall Street analyst and you go all in

and you say oh, there's no way they could be wrong,

and you dump all of your money into what they think,

that's overconfidence.

Or if you have overconfidence in your own ability

and you think that you can't possibly go wrong,

that's another way you can be overconfident,

but these are the main reason, guys,

that we follow the market,

and this is the reason why

the majority of investors out there buy high.

And hopefully you're starting to realize

why we're hardwired to do this,

and in order to do the opposite and buy low

you have to make rational decisions,

you have to make unemotional decisions,

or emotionless decisions.

You have to leave your emotions at the door

and do the opposite of what everyone else is doing.

Next let's talk about why we sell low.

So why is it that when all of a sudden

the supply is going to the market

and we see us losing money,

why would you sell at that point, when you're down money?

If you bought up here

and you bought at the top of the market,

and then all of a sudden it's falling in value,

why would it make sense to sell?

Why would it make sense if you're down $1000,

if you're down 10% on your investment,

why would you sell?

Does that make sense to sell and lose $1000?

Absolutely not, but most people do this.

First of all, this is risk aversion,

so basically this is the idea of,

well I don't wanna lose any more money,

so I might as well just take the loss.

So we're trying to avoid losing more money

by taking a smaller loss, and this is a losing strategy.

Another reason is the fact that a loss

is two times more painful than a win is joyful,

this is a psychological thing that goes on in our minds,

so that is why people who gamble,

when you make money you feel really good, you know,

you get all kinds of excitement.

But when you lose money, you feel really, really bad,

and many people go into a depression.

Think about relationships, too, you know.

When you're in a relationship and you're with someone

and you're in love with someone,

you're really happy and everything,

but then all of a sudden you lose someone

and you're like, oh my God, that really, really hurts.

That's because a loss is two times more painful

than a win is joyful, okay,

so when we lose money it really freakin' hurts,

that's why this triggers loss aversion

where we don't wanna lose any more money

and feel even worse, when really your best bet

is to just hold on to what you have

and buy whatever else is really down in value

during a bear market.

The other reason is because Wall Street pushes this.

Wait a second, didn't I just say

Wall Street pushes us to buy high,

but now they're also pushing us to sell low?

Why could that be?

Could it possible be because Wall Street

makes money when we're active?

Could that be the reason?

Because that's exactly the reason.

You have to understand, the idea for Wall Street,

what their point is, is to generate buzz,

they want us to be active.

They want us to trade in and out of stocks

because when we do that we rack up commission costs

and that's how Wall Street brokers make money

is when we trade in and out of stocks

and when we're active with our money.

They make money when we're active,

whether or not we are buying,

whether or not we are selling,

they don't care if we make money

because they make money no matter what.

They don't care what the markets do,

because they're making money when we're active,

when we're moving our money around.

They're making money on commission costs.

So that is why Wall Street will push us to be active

no matter what, so understand that

largely most of what we see on Wall Street is just noise

and you need to just filter that out.

Another reason, too, is recency bias,

this is the same thing as before.

When things are going bad,

and when we have multiple bad days

or multiple bad weeks in a row,

that's what's most recent in your mind,

so you think the bad times are just going to continue

because that's what's most recent in your mind.

So due to that recency bias, we have a tendency to think

the bad times are never going to end,

and as a result we want to avoid losing even more money

and feeling even crappier about ourselves,

so we just cut our losses.

Another reason is lack of confidence,

and the problem with this stems

from overconfidence in the beginning.

So if you invest in a stock

and you haven't done your research,

you don't have faith in that investment long term.

When you invest in a stock,

you should be looking at that stock and going,

okay, in 10 years will the actual value of this company

be worth more, be worth less, or worth the same?

And if you know that that company

will be worth more money down the road,

you're not gonna worry about short term price swings,

but if you haven't done your research

and you don't have faith in that company

and all of a sudden that stock goes down in value,

your lack of confidence in that company

is going to trigger you to say, oh gosh,

I better sell low and cut my losses.

The other reason is because other people are doing it.

Other people around you, everyone who invested

in these darlings of Wall Street,

everybody lost money because now those stocks fell in value

because they were in a state of unsustainable optimism.

So now all of your friends are selling,

and all of your friends are saying

oh gosh, I'm losing money,

I better sell before I lose even more money.

So you see what your friends are doing

and you go oh, wow, yeah, I should probably do that too.

It's a losing strategy, you have to make your own decisions,

don't worry about what Wall Street analysts say.

Don't worry about what your friends

or what everyone else is doing.

You have to go against what everyone else is doing

in order to be successful in the stock market.

The other reason, and this is a big one as well,

this is impatience.

If you invest in a stock,

you have to be in that stock for the long term,

and if you make a mistake then you have to eat it.

So what I mean by that is,

if you invest in a stock and it goes down in value

you're gonna have to go, welp,

I may be sitting on this for a long damn time,

because I have to wait for it

to go up in value before I sell,

while most people, what they do,

is they go down on an investment,

then all of a sudden they're like, you know what,

I don't like that stock anymore,

I don't wanna hold that stock anymore,

and they start searchin' around

and they find another hot stock.

So basically, today's winner was tomorrow's loser, okay.

Now it's tomorrow, and they're holding a loser

and they wanna sell today's loser

and buy today's winner,

which is going to be tomorrow's loser.

So essentially what they're doing

is selling whatever is not hot anymore

and they wanna buy the new hot stock,

which is going to be a loser.

It's going to be the loser in the future

because it's being pushed to a point

of unsustainable optimism.

So because people are impatient,

they wanna sell what they have,

they don't wanna hold on to the stock,

they don't wanna be stuck with it for many years,

they don't wanna sit there

and wait for it to come up in value.

You have to think long term with investments,

and when you invest in a stock

you really have to commit to it.

Those are the only people who are really

time after time making money in the stock market,

are the people who really have confidence

in their investment, they do their research,

and they invest long term,

and they just do the opposite of what the market does.

So hopefully you understand now, guys,

that you're going to want to do the wrong thing.

Your mind is going to trigger,

your survival mechanisms are going to trigger you

to do the exact wrong thing at the exact wrong time,

and you have to do the exact opposite

of what everyone else is doing.

I wanna leave you with two quotes

from brilliant investors.

First of all we have Warren Buffett,

he says "We should be greedy when others are fearful,

"and fearful when others are greedy."

So when people are being greedy and stocks are up here,

that's a time to be fearful,

that's when we should go okay,

this is getting a little bit out of hand, alright.

And then when people are being fearful

that's when we should be greedy,

that's when we should be throwing out money left and right,

buying whatever we can.

The other thing I'm going to leave you with

is the words of Benjamin Graham,

who was actually the mentor of Warren Buffett.

He kinda taught Warren Buffett

everything he knows about investing.

He says that "We should buy from the pessimists

"and sell to the optimists."

The consistent message here

that I'm hoping you're receiving

is to buy low and sell high,

and I'm hoping that after seeing this

and understanding why we do what we do,

you understand why this is so important.

Anyways guys, I hope you enjoyed this video,

this is the number one mistake people make when investing.

If you are new to my channel,

please consider subscribing.

If you found this video to be useful, please drop a like

and I hope you guys enjoy the rest of your day,

and I thank you for taking the time to watch this video.

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