It has been sometime since my last post. Many things happened along the way, and if you're happened to pass by, take this post as a fate that we interacted.
Was a sales person in the Financial Services Industry, particularly in the securities brokage for a couple of years and interacted with different clients from all walks of life. Many looked nice on the surface, with nice or fanciful job titles like myself does, but when it comes to their investment portfolio, 80% of these Retail Investors lose money and do not know what they are doing.
So here are three main points on Why 80% of the Retail Investors lose money in the Markets :
1) Too much focus on fees, commissions and the "freebies"
Over the past 5 to 6 years, we can see there are more discounted brokers coming in to compete with the traditional brokers. They are very much competitive in fees and commissions charged, with user friendly platform interface, and coming out with all kinds of "freebies" such as open an trading account, park in an X amount of funds and holding it for X days to X share. Coupled with the online "Finfluencers" actively promoting these low cost brokers platform.
Retail Investors are spoilt for choice, isn't it? They will compare and ask questions like "This broker is giving me X share and X benefits for referral, what can your side give?" " Your broker is too expensive in fees and commissions! The other broker provides free commission being charged! What benefits can you provide?"
There is nothing wrong in focusing on fees, commissions and the so call "freebies". However, too much focus on it deviates the fundamentals of why are you investing/trading in the Markets.
For experienced sales person, just hearing such questions and a few prompts to the client. they would be able to sniff out who are the experienced and valuable clients in the markets for long, and those not so.
The not so experienced client or i term them " noob " in the markets, usually focuses too much on the charges and key words they like to repeatedly use are "free" "benefits". They usually do not have an high investment amount to start off with, probably the max they can go is four digits, not even five. Yet, they think this amount is a damn big deal to move the markets ( It's a big deal to them though). That's why the focus is always on fees and the "freebies" .
Do they know that "freebies" such as X share kept in their trading account does charge a monthly custody fee if their account remains trading inactivity for a certain period? Do they know "freebies" such as what ever online trade vouchers the platform broker gave, requires them to spend first before activating the vouchers? Do they know 20 years ago, brokers were charging USD$15 per trade in commission for US trades? Those who were out in the markets for long would know how much trade charges were then.
Hence, most of these Retail Investors had deviated from the fundamentals of investing/trading which are the portfolio overall returns and risk management, to chasing the cheapest fees, and whatever benefits they could try their hands on.
2) Lacking of Portfolio Management Concept
The Inexperienced Retail Investors normally would see their stocks as individual stock each, and trades it individually for whatever reasons. Typically their holding period is also very short, probably in the range of days. They pride themselves as Investor, but are acts like a trader or a better term for it is Speculator.
When Markets goes against them , they start to panic sell whatever they had. The lack of Portfolio Management Concept does not allow them to see whatever stocks or asset classes they had allocated as a totality of their Investment Holdings.
The inexperienced Retail Investors lacked taking into account of how much each asset classes form part of their Total Investment Portfolio. Without this, it also concludes they lacked Risk Management.
An example would be a 100k Portfolio consisting 60% equities and 40% bonds. When the equities portion took a hit and loses 10k. The total value of the Portfolio now stands at 90k, which now comprises 55~% equities and 45~% bonds. The volatility of the Portfolio has been cushioned off by the bonds portion compared to an 100% Equity Portfolio, single asset class portfolio, which might loses more. By going 100% Equity Portfolio, Retail Investors also need to take into consideration of which Market, and what sector are they invested, in order for proper risk management.
An example of of even in 100% Equity Portfolio, there is still need for diversification into different markets for risk management.
3) 人云亦云, Following the herd without doing due diligence
For the past few years, especially during covid times. There were sudden sprouts of people getting interested in financial and investment related topics, hence that is also the time where "finfluencers" were born.
These "finfluencers" provided a more interactive financial information to the viewers on top of the regular financial websites and applications.
Financial information were everywhere now, and that is where most of the "Noob" Retail Investors made the mistakes of investing/trading blindly without doing proper diligence.
Remember the case of Luna crypto coin crash in 2022 where many Retail Investors were burnt. The co-founder was later found to be involving fraudulent acts. (https://www.forbes.com/sites/qai/2022/09/20/what-really-happened-to-luna-crypto/)
For Most Retail Investors, the deadliest mistakes they can made is to believe any financial information provided due to complacency without doing much due diligence themselves whether it is a financial product or financial service related, which potentially cost them life savings.
I have been seeing euphoria in the markets for the past 1 year. I had friend/s who are not in the business acting like they know it all, telling and advising you what you should do, while they blindly follow the mass based on the stocks they picked and highlighted. They, like the 80% of Retail Investors, do not know what they are doing.
