Why Most Investors Lose Money.

Here’s some behind the scenes action! This is generally what my set, my beautiful set, looks like. Look at that silver play button too! By the way, close up there we are, pretty cool. Totally normal for my, uh, my screen to be on the Tesla design studio; always just a white Model 3 Performance. That light should just perfectly be out of frame.

All right, let's get stuck into the video. Welcome back, guys! In this video, I wanted to talk about why most stock market investors just straight up fail. They actually don't make any money throughout their lifetime in the stock market, and, uh, you know, I'm not trying to say that, oh, I'm this investing god and I know exactly what I'm doing and this and that.

But what I do know, having run an investing-based YouTube channel for three, four years, is that there are some definite traits that are consistent among people that do really poorly in the markets. Overall, I think it's really sad because most I think most everyday investors probably do end up losing money in the markets. I mean, that's just a catastrophe because, like, I know that the stock market is by far the most reliable way to generate financial freedom that exists on this here planet Earth. It's really sad to see people that mean well and want to get started with investing just fail at it or do poorly because of a few different characteristics or a few different traits.

So what are those traits? What are those characteristics that kind of doom a lot of people to failing when it comes to stock market investing? Well, let's talk about it right now.

[Music]

This video is sponsored by Stake. Download the Stake app today and use the referral code AWC to receive a free stock when you fund your account. Details in the description!

So the first trait that I see that's common throughout everyday people that end up doing very poorly in the stock market is that they are just, they're simply too speculative. Right? They think that the extent of research that you need to do if you want to be an individual stock picker is maybe, you know, check the P/E ratio, good! We're seeing a little bit of revenue growth; that should be a good investment. But a lot of people have this surface-level understanding, but they really don't have that deeper understanding.

And how much do I talk about the importance of understanding the business? Right? At the end of the day, we've got to remember that when we're investing, the thing that we're buying is a piece of a business. We're not buying a stock! That's the big psychological hurdle to overcome as a new investor. You're not buying a stock; you're buying a piece of a business.

So I guess an analogy that I sometimes use when I'm talking about stock market investing is to think about, well, property investing. Okay, imagine if you're in the market, you're looking to buy an investment property, right? There's no way on earth that you would buy an investment property without doing an inspection!

Right? And I feel like a lot of new investors, particularly, but just a lot of investors in general, they think that, for instance, the extent of research that you might have to do before investing in a, you know, investment property is just showing up to the inspection and then just having a look at the property from the footpath. That’s the analogy.

And of course, you'd never do that if you were looking to buy an investment property. You would make sure you went inside, you checked the layout, you checked the condition, you checked the plumbing, you checked the, you know, the heating and the cooling, you checked the backyard, all of that stuff! There’s no way you would buy an investment property from just standing and looking at it from the street.

So that's the same kind of idea that you've got to go into when you're investing in stocks or when you're investing in businesses. Right? You have to do your due diligence. You have to research and understand that company. That's why literally when I talk on my investing courses, if you've done the “Profitable Investing” course or “Introduction to Stock Analysis,” the longest part of that course is understanding the business.

And it's the part of the research process; it's the part of the investing process that does take the longest. It might take weeks and weeks, if not months, to actually fully understand a business from your own research, but it's definitely the most important. It's the number one reason why I reckon that people end up doing poorly when they're picking stocks is they simply don't understand the business they're investing in well enough.

Now, moving on to the next point I wanted to make, still keeping with the kind of being too speculative kind of idea, is that another big reason why a lot of investors fail, at least from what I've observed, is that they put too much emphasis on what other people think. But if you want to do well with picking individual companies to invest in, then it really pays off.

You'll be much, much better if you block out all the noise! Literally from everyone. That's one of the famous reasons why Warren Buffett keeps Berkshire Hathaway's office in Omaha as opposed to New York, because he's said on record, half joking but half not, that he wants to be as far away from Wall Street as possible. Right? He wants to be completely detached from Wall Street, and you know, you should do the same. You shouldn't be getting caught up in the hype of, say, CNBC, what you hear from a fund manager on TV one time, or even what you hear on YouTube from one of us finance YouTubers.

If you're able to just block out all of the noise of the people around you and you just trust in your own research, then you will do much, much, much better. If we go back to that investment property analogy that I was talking about earlier, say you're still standing there on the footpath, right, looking at this investment property and trying to decide whether you like it or not.

Say you're talking to the real estate agent and say they just say, "Oh yeah, look, this is a beautiful three bed, two bath. It's in top-notch condition; it's on the market for, you know, 550,000 to 600,000. You could easily, you know, comps around the area, you could get 450 a week rent in it." I mean, yes, you would listen to them, but you wouldn't just straight up trust them and buy the investment property right there and then just based on what they told you. Right? There's no way you'd do that!

You'd be stupid if you just trusted what this person that’s trying to sell you the property is telling you. Of course, you'd go and do your own research, and you'd ultimately come up with your own decision. Right? Exact same thing in the stock market; exact same thing in the stock market.

It's okay to listen to other people's opinions, but at the end of the day, you don't want to make an investment based off what someone else says. Ultimately, at the end of the day, to hammer home this point, remember that literally every single one of us is in a slightly different financial position. Right? We've all got different goals; they might be similar, but we've all got different goals slightly.

And that's why on the tin of all these different financial products they have to put the disclaimer: "Do not take this as financial advice; we haven't considered your individual circumstances." Right? They put that there because, obviously, it's a disclaimer, but also because it's true. Right? The person that you are listening to might be in a completely different situation or looking to get something completely different out of their investing to what you're looking at getting out of your investing.

They might be in the market for a perfectly nice family home when you're in the market for a studio apartment. So, so far, we've covered the two big traits that I personally see a lot of failed investors basically all have: they're too speculative, and they rely on other people's opinions too much, and that sways their own opinions.

But there's also a really crucial third step, a third characteristic that a lot of failed investors have, is that they simply weren't investing for long enough. And a lot of times, it's all up here, right? It's all in your head. Maybe something spooks you out of your investment; maybe something spooks you out of the market. Right? Or maybe your brain tells you, "No, I want that instant gratification of that new car, so I'm going to sell my investments and buy a new car." Whatever it is, a lot of people just simply do not persist, and they just don't go the journey in the stock market.

And it's my personal belief that if you're an everyday investor, 99 times out of 100, you should be focused on ultra long-term investing. Forget day trading; forget short-term investing. Okay? Leave that to people that have been doing it for years and trade every day and watch charts for a living; leave that to them. But for the most for the rest of us, we should be focused on ultra long-term investing because if you're in great companies, the long term is pretty predictable.

The short term? Who knows! Same thing with markets in general. Okay? Well, stock markets, you know, Australian stock market, um, America, for whatever, in the short term, who knows what's going to happen? But over the long term — by long term, I'm thinking 5, 10, 15, 20 years — over the long term, the longer you leave your investments, the more likely it is that you'll eventually have more money than what you started with.

I mean, consider this: I've been a Tesla shareholder for a little while now; still not a very, very long time, but I've been an investor for like four years or something, four or five years now. I bought my first lot of shares at about 250 per share; this is before the recent stock split. And for a fair while there, the Tesla stock price crashed down to about 180 per share.

Now, for a lot of people, that would have been enough to spook them out of the investment! Right? Just, "Oh crap, take my money out because I don't want to lose any more." But if I had done that, then I would have missed what happened after that. Over the past year, Tesla's basically gone 10x; the stock price is now 400ish dollars, and that's after a five-for-one stock split.

So that just tells you the advantage of being an ultra long-term investor. Okay? Keep hold of your nerve when the times are tough! Okay? And take advantage of when the times are really good. Now, you don't have to be a stock picker; even a lot of people don’t even realize — like everyday investors don’t realize — you don’t have to pick individual companies.

You could just buy into an ETF or a listed investment company which just tracks the general market, the overall market, and you just get the market return. That's totally fine! And if that's the case, then the longer you stay in, the more likely it is that you're going to make money. If you take major stock markets around the world — Australia, United States, London, wherever — okay? Generally speaking, they come out to a rough annual return of eight percent.

Now, of course, you don't get that every single year, but over a long stretch of time, that's generally what the average annual return ends up being. Now, if you started with say ten thousand dollars and you just sunk it into the market and you did get that average eight percent every single year and you came back in just ten years, right? You just left it alone, compounding effect happens. You come back in ten years, your ten thousand dollars turns into twenty-one thousand dollars.

Now that's pretty amazing if you ask me! Like it doubles your money in ten years, which is phenomenal, but it's not like revolutionary. It's not groundbreaking! However, what happens if you leave that ten thousand in, and you get eight percent every year, and you come back in 40 years? So you've got a working career's length of compounding that's been happening on that ten thousand dollars.

Well, if you come back in forty years, that ten thousand dollars has turned into two hundred and seventeen thousand dollars. Now, if that's not inspiration to go the journey with your investing, then I don't know what is! Because, to me, that is just absolutely phenomenal, and I wish if there's one thing that I could show young people it would be the chart the difference between, say, 10 years of compounding and 40 years of compounding at the same annual return; it is just night and day!

But for one reason or another, a lot of people simply don't go the journey, and that is by far the biggest reason why people fail with their investing. They are too short-term focused. They want instant gratification! Anywhere else, they get disappointed because their stock goes from 20 to 15, and they take all their money out and they say, "No, I'm done with it, I hate investing."

I mean, the stock market is the most reliable way to achieve financial freedom, to build wealth. That's completely obvious! If you just go the journey, stay focused on the long term and do it right. Here’s a funny little thing to finish off the video: Fidelity actually did a study because they wanted to figure out what were the characteristics of their best-performing accounts.

What they found is that the accounts that had grown the most, that have done the best over time, were actually owned by people that forgot that they had a stock broking account. How's that for proof that one of the biggest reasons why the vast majority of investors fail is because of this? Right? The data's all there!

The stock market averages roughly eight percent per year if you stay invested across the market for a very, very long period of time. It's actually pretty likely that you'll make a fair amount of money. And Warren Buffett says this; I mean, Warren Buffett, he loves active investing, he loves stock picking; that's his jam! But he also says that for the vast majority of everyday people, they should just look to become passive investors because it works.

It's worked for a very, very long period of time. The only thing you have to do is you have to be patient. You have to be determined! Right? It's a very easy strategy to actually implement, but it is hard in the sense that you have to keep showing up, you have to keep going, you have to stay determined, and you have to go the journey.

But overall, I think that's where I'll leave this video. They are definitely three really key traits, and they're the traits that I see consistent in investors that do pretty poorly: too speculative, they trust other people way too much, and at the end of the day, they just don't keep going with their investing; they just don't go the distance.

I'm sure there are heaps of other traits as well, heaps of other pointers that are common amongst investors that tend to do quite poorly. So if you have any that you've thought up, then definitely drop them down in the comments section below; let's keep the discussion going.

But that's it from me for today, guys! Leave a like on the video if you did enjoy it or if you found it useful. You can either click it once, click it three times, or click it five times; they're your three options for today! But overall, guys, that'll do me for today. Thanks very much for watching!

Uh, if you're interested in learning more about my own investing strategies — we've talked a lot about the passive investing strategy — or if you'd like to know my active investing strategy, links are down in the description. Head on over to Profitable, check that out if you'd like to support the channel even further. But that will do me for today; thanks very much for watching, guys!

I'll see you all in the next video! Thanks for watching the video, guys! I just wanted to let you know that this video is being sponsored by Stake. So if you don't know, Stake is the brokerage platform that I use to trade US stocks. The reasons that I like them? First of all, they are a brokerage-free trading platform, which is awesome! And you can also access fractional share trading, which is super helpful.

If you don't have heaps of money, you can still get started up with your investing over in the US markets! So the Stake platform is really intuitive; it's very simple to use, so I definitely encourage you guys to check it out and download it now.

The other thing I'll let you know is that if you download the Stake app and you use my referral code AWC, then Stake are going to give you one free stock! They're going to give you a share in either GoPro, Nike, or Dropbox, which I think is an awesome incentive that will help you guys get started. So definitely make sure when you make an account, use the referral code AWC to take advantage of that free stock.

So, a pretty good deal! Make sure you get on it! Thanks always to Stake for sponsoring the channel, and I'll see you guys in the next video!
[Music]