Why is it hard to make money in stock market trading?

Posted by Fitz Villafuerte under Investing on June 4, 2016

I always read about people making lots of money in stock market trading. I have studied how it works, and know more than an average person about stock market trading. But why can’t I make lots of money? Why is it hard to make money in the stock market, particularly, stock trading?


The short answer:

Because you’re still not good enough. So either you level up your skills or just invest. Stop timing the market and do something else.

The long answer:

Don’t compete with people who are better at the business than you are.

When I was a beginning physicist, I invested in the stock market. Initially I did very well; I now attribute that to luck. I began to think I knew something that others didn’t. It is easy to think you are smarter than you really are.

When things went badly for me in the market, a friend explained that I was up against professional investors. He asked me to imagine a random person competing with me in a physics question. Suppose some stock broker had to solve a physics problem, in competition with me. How would he do? The answer was obvious: the stock broker would do miserably.

But here I was investing casually in a market in which very very smart full-time professionals are trying to make money. Perhaps if I devoted myself full-time to the stock market, I could do better than they could. But if it was only part-time; if I did only casual homework, reading about companies in the newspapers rather than visiting them and making deep evaluations … then I was competing with true experts.

Some people think that the stock market is not a zero-sum game, that all can win. Yet in every trade, one person buys and the other person sells; they can’t both be winning on an objective scale.

So the true experts need to have someone to supply all the money that they make at their profession. By investing in the stock market, I was playing that role; I was one of the people who was supplying the money that would make the true professionals rich.

I decide to stop investing in things I didn’t master, and to simply work harder at something in which I knew I had talent, physics. I think this was a very important decision for me. Go with your strengths.

Answer from Richard Muller

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