When You Lose Money In The Stock Market Where Does The Money Go?

It is reported that only 10% of the people who invest in the stock market win or become successful, the other 90% lose their money. Losing money in the stock market is normal, so this means that you will most likely lose money at one point or another. The question that lingers in people’s minds is where the money goes after you lose it. For starters, you don’t lose money you lose the value of the stock, because you cannot earn any money if you don’t sell the stocks you own. The stock price is not the same thing as money; it is usually an estimate of what the stock is worth.

When a company goes public it releases a number of shares that are valued at a certain amount, once you buy the number of shares that you can afford, you become a part of the company. When the company earnings are good, the market value of the shares goes up, meaning that when you sell the shares you own you will get your profits. The vice versa holds true, when the earnings of a company go down because of certain factors, the value of a stock will go down hence selling the stock will not yield any profits. That is how the stock market works.

The Company Is Not In The Picture

Once the money is lost, the company that issued the stocks does not get the money. Primary market is the initial transaction between the company issuing the stocks and you, the buyer. This is the only time that the company can receive money from you. Although, the company can buy all the shares back, you have the right to sell the stocks anytime you want. The company does not receive anything from the stocks whether the market value is good or not.

Does The Money Disappear?

Regardless of whether the market is appreciating or depreciating, it is the supply and demand drive that determines if you will lose or gain money. Going back to the question, once you lose in the stock market, the money does not disappear; the value of the stock depreciates which might cost less than the original price.

Reasons Why People Lose In The Stock Market

Before you can understand where the money in the stock market goes, you need to understand why people lose in the first place.

People lose money due to the unpredictable market value; once the company is affected by the internal or external factors negatively, the earnings of the company drop, hence the market value of the stock drops.
The timing of investing in the market influences the gain or loss of stock value; investing during a recession is beneficial, you will own your shares at a cheap price.
Being too hasty; it takes patience to be able to get your investment back in the stock market. Most of the new investors usually trade with haste as they want to make quick money. Stock market does not provide quick money. You have to develop patience if you wish to make profits.
How To Avoid Losing Money

It is important for you to learn how to avoid losing money in the stock market. This way you shall ensure that you get your profits back. Below are tips to help you avoid losing money;

1. Identify And Observe The Market Phase

The market phase refers to the trading or the trending times of the stocks. If you are unable to understanding the market phase you may end up investing using the wrong indicators. It is thus important for you to observe the market phase. Don’t buy a stock based on its past performance. The stock value is based on the performance of the economy. This means that a stock might be up during a period of time and down in another.

2. Take Emotions Out Of The Equation

In the stock market, if you want to make money, you trade first and ask questions later. If you have a stock that is gaining sell it in an instant and don’t debate about it. This is because the market is unpredictable and the stock value may depreciate fast. You also need to be patient, don’t quit the game because you have lost money in the first round. That is the nature of the business.

3. Observe Before Trading

If you are new to the stock market it is recommended that you learn about the basics before you invest. This will help you avoid any mistakes that might cause serious problems. It is also good to observe the trend of the stocks before buying or selling of the stocks.

Losing money is inevitable in the stock market. What matters is not the fact that you lose money or where the money goes, but how to avoid the mistakes you made before.

Top 10 Bear Stock Market Investing Tips

1. Find Undervalued Stocks – Stock market investing in a bear market can be tricky because the entire market seems to be on the decline. Look for undervalued stocks which have a price lower than the anticipated stock value in the near future. If the company is solid and shows promise but has a very low stock price it may be a good choice, especially in a bear market.

2. Engage In Short Selling – This investment method involves a complicated process which utilizes the loaning of stock shares. The investor borrows the shares with an agreement to deliver the exact same number of shares at a later date. The shares are sold by the investor and then repurchased when the price of the stock drops. This short sale means a profit because the investor sold at a higher price than the stock is repurchased at.

3. Watch For Signs of A Bull Market Approaching – Both bull and bear markets are cyclical, and eventually a bear market will turn bullish. Smart investors watch the market carefully so that the first signs of the market turning can be detected and acted on quickly.

4. Invest For The Long Term – Successful stock market investing will usually look at the long-term prospects of a stock, and this is true in a bear market as well as a bull market.

5. Avoid Margin Positions – A bear market is not usually the best time to take margin positions because of the expected market decline. Most professionals and experienced investors advise that margin positions should be closed and avoided until the market conditions turn more favorable.

6. Be Cautious with Ratings Systems – Many investors use ratings systems to help pick ideal stocks to invest in. A bear market can cause these systems to be unreliable, and may result in large losses instead of better stock picks for an investor.

7. Be Alert For Any Market Trends – Successful stock market investing when the market is bearish means noticing market trends right away. Roughly 75% of stocks on the market will follow any trends that occur. Detecting any trends early can make the difference between success and failure.

8. Don’t Hold a Losing Position Out of False Hope – Some investors refuse to sell even when the losses continue to pile up, either from emotions like fear or out of false hope that the market may turn around soon. Be realistic about the stock prospects, and sell if this step seems like the best choice.

9. Don’t Panic and Start Selling Everything – A big mistake made by many investors is to start selling stocks indiscriminately when a bear market hits. This is done in an effort to minimize the investment losses, but eventually the market will turn around and most stocks on the market will rebound.

10. Only Choose Stocks from Solid Companies – Successful stock market investing means performing extensive research on each stock considered. Only including quality stocks from solid companies in the investment portfolio will help protect the investment value over time regardless of any short-term market changes.

How to Invest in Common Stocks in the Stock Market

The Stock Market

Investing in the stock market is a risky business. However, there are many areas in which one can invest in and either reduce or increase one risk. Usually, the higher the risk, the higher the reward. The areas of investments are options, mutual funds, common stocks, preferred stocks, governments bonds, etc. Government bonds and mutual funds are the list risky. However, the returns on these investment instruments are very low. Returns usually range from about 3% to 5%. The area in which I am specialized in is common stock and the focus of this article is about investing in common stock. Investing in common stock has a higher risk than government bonds and mutual funds. However, if you do your homework properly and thoroughly you will reduce the risk significantly and the rewards are usually great.

Getting Prepared to Invest in the Stock Market

Before you can invest in the stock market, you will need to open an account with a reputable stock brokerage company. It is preferable to use a bank that has a brokerage division. The reason for this is for you to have easy access to your money. That means, you can transfer money from your brokerage account to your bank account instantly. Otherwise, money has to be mailed to you when you do a withdrawal from your brokerage account.

Next, you need to sign up to have online access to your account. After this is done, you will need to have real time access to the stock market. Most reputable brokerage companies will provide this service to you depends on your deposit. The more money you deposit, the more services you will get for free. Note – you do not need the 15 minutes delay real time stock prices. This is no good to you. You need real time stock prices. Once this is set-up, you are ready to rock and roll.

Common Stock Selection

The Next thing you need to do is to find the stocks that you want to invest in. This part is time consuming. What I did for finding my stocks is as follow: at the end of every business day, I looked at the stock market of interest and look at all the best performing stocks for the day. In doing so, you will get a stock code which is necessary for buying, selling, and researching stocks, etc.

The next thing you want to do is to research each stock that you are interested in. You want to look at financial statements and balance sheet for 5 years. Financial statements will tell you if the company is making money or losing money. Also, a financial statement shows you a company sales trend and expense trend. Therefore, you can determine if a company is growing or not. The balance sheet will tell you if the company has money and assets or if it is in debt. If a company’s liabilities is 25% of all its asset, that is a financial sound company. However, if a company’s liabilities is 75% of its assets, that company is in serious financial debt and will be a very risky investment. To be successful in the stock market, you will need to be knowledgeable about financial statements and balance sheets.

Next, you want to research what a company do as a business. Also, you want to know who are the stock’s holders of a company, who is the CEO(chief executive officer), who is on the board of directors, does the company pays dividend, etc. Also, you want to check all the news headlines about a company for about 5 years. After all this is done and you are satisfied with the company, you put this company in your portfolio. You do the same procedure for each company that you are interested in. Note – you have to diversify your portfolio. Invest in companies that are in different kind of businesses. For example, invest in companies that are in various business segments – mining, manufacturing, services, etc. Once you have a number of companies in your portfolio, you are ready to do business.

Monitor Stock Price

The trick of making money in the stock market is to buy low and sell high. Therefore, timing is very important in the stock market. All stocks have a pattern. There are peaks and valleys in every stock. Certain news, will drive stocks prices down or up. These are the waves that you have to look for. Therefore, you buy on the low and sell on the high. To monitor a stock price, you will have to create a stock chart. Your brokerage company may provide this service. look for stock chart. You may also find stocks charts on Yahoo Finance.com, StockCharts.com, and other similar websites. Once you find the service, all you have to do is to enter the stock code. Next, you will have to select a time frame. You can select the maximum time frame and see what the stock have been doing for a number of years. Next you can select 5 years and see what the stock have been doing for the last 5 years. You can play around with the stock chart to get a feel of the stock. At the end, you want to figure out the stock low and high price. Being able to analyze a stock chart is a very important aspect of investing in the stock market. Acquiring this skill and becoming very good at it is very important for making money in the stock market.

Buying and Selling Stocks

Once you have done all your research, and you are satisfied that you are in a good position to buy, you go ahead and buy.That means that you go online and put in a bid to buy a certain amount of stocks at a certain price. Once your bid goes through, you are now a part owner of a company. All the information about your purchase will be available to you online. Note – the brokerage company will charge you a commission for buying and selling stocks for you. Also, the key to making money in the stock market is to buy stocks in large volume. You do not have to buy all the stocks on one purchase. You can buy in segments. That means, if you want to buy 2000 shares, you can purchase 500 shares on 4 different occasions – buying leverage.

Now you have bought some stocks, you have to keep on monitoring the stock price. Sometimes, the stock price may drop further from where you purchase. Do not panic, as long as you bought in the low range, you will be good. It is very difficult to buy at the exact lowest price and sell at the exact highest price because you will never know for sure what that will be. Stocks have a tendency to hit new lows and new highs. You will have to trust your instincts based on whatever is going on in the news.

The good thing about common stocks is that you can sell them at anytime as long as the price is right to you. So therefore, if your stock hit it lows and it highs on the same day. You can purchase and sell the stock on the same day. I have done that on numerous occasions as a Day Trader. However, this does not happen all the time. Sometimes, you may have to hold the stock for a while before you can sell. The key to the stock market is that you have to monitor the business news all the time. Certain news, will cause the stock prices to either drop or rise and you have to be ready to act. Now, you have the basic knowledge to start investing in the stock market.