For many aspiring investors, the stock market can seem like a quick path to wealth. The idea of beating the market and making huge profits is alluring. However, as Josefino Gomez, a Registered Financial Planner, points out, the reality is often much harsher than anticipated.
“We usually think that investing is a game where the goal is to beat the market and make tons of money,” Gomez told Financial Adviser PH. “But the truth is, without proper training and experience, most people are setting themselves up for failure.”
The primary issue, Gomez explains, is that many investors dive into the market without understanding the basics. “We cannot be competent doctors with little or no knowledge of the human body, or lawyers with no knowledge of the law,” he says. “Yet, we want to become hugely profitable market-beating investors and traders with virtually no training or experience.”
This lack of preparation is the main reason why many fail. When new investors start, they often experience initial success, which fuels their confidence. But over time, this leads to greed and poor decision-making. “They follow what’s hot, overreact to news, and follow the herd,” Gomez explains. “Usually buying near the top.”
This herd mentality, combined with the fear of missing out (FOMO), results in purchasing stocks at overvalued prices. As prices fall, many investors refuse to admit their mistakes and hold on, hoping for a rebound. “They average down losers, putting more capital into bad investments to lower their purchase costs,” Gomez warns. “Unfortunately, this rarely works, and they sell at a huge loss when fear sets in.”
The key to avoiding these mistakes, Gomez advises, is to start small but think big. Understand that investing is a long-term game. He recommends education, experience, and discipline as the foundation for success. Rather than chasing quick profits, build a solid strategy based on sound principles, and always keep emotions in check.
The takeaway:
The stock market isn’t a get-rich-quick scheme. By acknowledging the pitfalls and focusing on steady growth through knowledge, patience, and strategy, investors can avoid failure and build lasting wealth. As Gomez told Financial Adviser PH, “A wise investor knows when to act and when to sit still.”
