If the stock market always recovers and goes higher over time, why is it that the majority of people (80%) lose money?

The main reasons are because most people make investment decisions based on the short term and not the long term (most people are impatient and greedy).

At the same time, they make decisions based on EMOTIONS and not logic. The two emotions FEAR and GREED cloud rationality. This leads people to make loss-making investment calls.

For example, many people often get caught up in the euphoria of good times amid a bull run, buying even when the market is overpriced (i.e. during the dot com bubble of 2001).

At the same time, emotions cause people to sell when theirs stocks dip over a long stretch of time. As they see the value of their stocks getting lower and lower, their FEAR of losing more will cause them to sell at low prices.

The best way to protect yourself from such emotions, is to understand how the market works. A lack of knowledge gives fertile grounds for such emotions to manifest. It opens your eyes to realize where the windows of opportunity and traps are.

Many people tend to invest when they have seen that stock prices have been going up after some time. The first thing salespeople selling bank products will show you is how well their fund has performed over the last 3-5 years.

This past performance creates an impression and the confidence that prices will keep going up. The temptation to make money from this uptrend is what draws most people to invest.

However, we now know from studying the cycles of the stock market that what goes up after some time (especially 3-5 years), will come down. This is called a correction! This is why most people have the common experience of seeing their stocks fall after investing.

With knowledge of how the cycle works, market downturns are logically the best time to be buying. This is because EVERY MAJOR DOWNTURN or crash is followed by the next bull run.

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