For at least once in our life we all have heard stories from either our friends, families or colleagues about some person who lost money while Investing in an equity market.
Or you personally know that person who made losses.
Or it might be possible that even you had lost your money in it.
We either stay away from it or hesitate to put our hard-earned money in an Equity Market.
Yes, it is true that most people make losses in the stock markets. It's a fact.
There's a collectiveness of thought that 'Stock Market is not for everybody', specifically of our previous generations.
But the question is WHY?
Well, let's try to recall the same experience you have heard of, this time more carefully. You will find answers there only.
But first of all, let me tell you in brief about active income and passive income.
Income from business, job, profession are examples of active income while income from interest, dividends, investments, etc are types of passive income.
So the basic difference between the two is YOU. If you work for money that's an active income & when money works for you it's your Passive income.
So ask yourself now, IS STOCK MARKET A SOURCE OF ACTIVE INCOME OR PASSIVE INCOME...?
What do you think?
If you are having a doubt in differentiating it, here's another question:-
Are you involved in the money-making process when you put your money in the stock market? Of course not. So yeah, it's a source of passive income.
Now answer to the question why most people make losses is that they mess with the fundamental principle of a Share Market, which is that it's a source of passive income not active income.
Most of us try to generate an active income out of it, to gain a quick amount of profits.
Let's look closely at what people do to make money out of the stock market in a short span. But before we proceed let's have a look at some of the numbers.
On 09-07-2000, Sensex was at 4729.63
On 09-07-2020, Sensex was at 36737.69
The average annual growth rate of Sensex is 10.79% in the span of 20 years.
So one thing is for sure, STOCK MARKET DO CREATE WEALTH.
Now let's have a look at its volatility. Here's a snapshot of Sensex. It's a roller coaster ride.
So what people do is predict the market on a day-to-day basis. I want you to look at the above picture again.
Do you think it's possible for you to predict the market?
Surely you can, BUT NOT ALL THE TIME.
The ultimate fact about the stock market is that it is very random and unpredictable. Yet knowingly or unknowingly most of us do the same and end up making losses.
But the problem doesn't end here, after making losses we assume that the stock market is nothing but betting! Those who are making money out if it is lucky people.
We reject one of the most effective tools of creating wealth for the rest of our lives.
Psychologically that one 'loss' leaves a huge dent on your financial well-being.
Remember equity is an investment tool, a source of passive income not active income. It creates wealth for those who have patience!
Trading is not the play here. Patience is the key.
People like Warren Buffett, Rakesh Jhunjhunwala, Radhakishan Damani who created their fortune out of a stock market are living examples. They have one thing in common which is, they are not TRADERS, they are INVESTORS!
Years of experience & they all say one thing, don't try to predict the market!
And that too with the pinch of humor!
But before you start investing don't forget to learn first. How can you possibly earn if you don't wanna learn? Trading is the one way of losing money in the stock market. Lack of knowledge & awareness is also a fact which drags people into losses. We shall discuss it in our upcoming articles. Till then.
You know what you have to do now. ;p
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