Why 97% Of Investors Lose Money

What's up you guys, it's Graham here, and we're f- Look, chances are quite a few people are about to lose a ton of money investing over these next few years. Like, we've already seen a stock market valuation similar to that of the dot-com bubble. For the first time ever, new homes are cheaper than existing ones. And real talk, we're currently at a level where it's not too late to begin taking some precautions ahead of time, if you just know what to look for. That's why if you want a blueprint to come out ahead long term, regardless of what happens to the economy, and during a time when 97% of traders are losing money, here's everything that you need to know, and the most common investing mistakes that nearly everybody makes. Because the reality is, we have just printed another $4.1 million in the time it's taken me just to say this intro, and if you aren't actively planning for this, you're going to be left behind. Although before we start, as usual, if you appreciate candid videos like this, it would mean the world to me if you hit the like button or subscribe if you haven't done that already. I know it's stupid to ask, but it does help out tremendously, and as a thank you for doing that, I will do my best to read and reply to as many of your comments as I can. So thanks so much, and also big thank you to Surfshark VPN for sponsoring this video, but more on that later. Alright, so if you want to avoid losing money, the first step is very simple. Don't get overconfident. Here's the thing. In a bull market, everybody looks like a genius. Really, since 2020, you could have created a wall of random stocks, thrown a dart blindfolded, invested in whatever you landed on, and still made money. In fact, to prove this point, four years ago, I had a monkey pick 10 random stocks from the S&P 500, and even that portfolio is currently up 35%. Remember, this is a monkey we're talking about that's pulling similar numbers to a hedge fund. Let that sink in. The point I'm trying to make here is that when everything is going well, it's easy to think that you've just become a very good investor. But the thing is, once you get overconfident, you begin losing your edge. All of a sudden, when this happens, it's easy to overlook the risks, ignore the fundamentals, and invest because so far it's turned out really well, and every drop has only lasted a few weeks, and then you make a ton of money. However, this type of overconfidence eventually causes you to make riskier investments, or you hold on to really bad investments for too long, because if you are confident enough to buy it in the first place, you're definitely confident enough not to sell it, right? Wrong. That starts clouding your judgment, and you begin not to make sound, rational decisions, and when that happens, again, you lose money. Now that, of course, is not to say that you can't be a genuinely talented investor, and I've met so many people who have been instrumental in helping me with my real estate investments and creating a well-diversified portfolio, but those people are usually smart enough to know that they don't know everything, and to always expect that anything can happen. Anytime I've met a genuinely good investor, they have a cautious optimism about them, where even if they're doing well and making a ton of money, they still acknowledge that there's missing pieces of information, and to expect the unexpected. I just think a little humility goes a long way for most investors, and as soon as you acknowledge that you don't know everything, chances are the more money you're going to make. Now the second mistake that almost all of us are guilty of at some point is getting impatient. I've just seen too many times where someone's bought a really great stock, they hold on to it, and then after a few weeks of it doing nothing, they sell it and try to move on to the next big winner. But what usually ends up happening is that as soon as they sell, that original stock finally begins trending upwards, and they completely miss out because they're constantly chasing from one stock to another. The fact is, impatience ends up leading to impulsive, short-sighted decisions. It implies that you know how to best time the market, and it reinforces that it's okay to sell a stock once you get bored of it not constantly going up in price. In this case, the reality is, patience is one of the best qualities that you could have. Not only with investing, by the way, but also with life. Nine times out of ten, the markets never just go up indefinitely, and there are going to be times where things just flatline, and that's normal. When it comes to this, the goal is to plan, invest, and think in ten-year increments, and when you don't do that, you become reactive. When you become reactive, mistakes are made, and when you make mistakes, money is lost. So if you want to avoid this mistake, just rest assured that time is on your side, and as long as you're properly diversified, in the right companies, for the right reasons, you're going to be just fine. As long as you don't screw it up going all in on meme stocks. Next, third, with margin debt surging 9.5% in June, it's equally as important to make sure you do not borrow too much money. I've said this before, but borrowed money is very much like a fire, where if you use it properly, it'll keep you warm and cook your food. But if you abuse it, it could very well burn everything down and destroy all of your finances pretty quickly. That's why I'm not going to sit here and say, don't borrow money, borrowing money is bad. You just have to do it responsibly, and make sure you don't borrow too much more than you're able to pay back. For example, when it comes to myself, I don't have any credit card debt, no auto loans, I just have mortgage debt on cash flowing rental properties all fixed for the next 30 years, under 3.5%. In those cases, the cash flow more than pays for the rent, and if for whatever reason I have to sell, there's enough equity to pay off all the loans. On top of that, those mortgages make up less than 15% of my entire portfolio, so if the market were to crash, it would really make no difference whatsoever. Honestly, the point where people get in trouble is just when they borrow too much money on short-term speculation, and they don't have enough to cover themselves in the event of a prolonged downturn. Though sure, even though borrowing money will help you earn a lot more when times are good, like they have been for the last five years, when the market eventually does turn around, it's going to amplify those losses so much worse, and that has to be taken into consideration sooner than later. Although before we go into the fourth investing mistake, here's the thing. Being financially responsible isn't just about growing your money, it's also about keeping it safe. Like most of us log into bank accounts, send payments, or log into brokerage apps on the go, and doing that on public Wi-Fi is basically like leaving your wallet on the table. That's why for the last few years, I've been using today's sponsor, Surfshark VPN, to protect my privacy and security. For those unaware, Surfshark VPN works by encrypting your online data so that no one can see what you're doing. 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And anytime I go on websites like Reddit, YouTube, or Twitter, there's no shortage of people believing anything they see just because someone came up with a really convincing argument as to why a stock is suddenly about to go to the moon. Or maybe they see one person making a lot of money and they think to themselves, well, if this person is doing this and they're really smart and they have a lot of money, I should probably be doing it too. Take Palantir for example. I know a ton of people who bought in January of 2021 when it was $35 a share because so many people were hyping it up only to sell it a few months later for $7 when the excitement fizzled out, even though had they held and just done nothing, they would have actually made a lot of money. To me, that is a telltale sign that you're not doing any of your own research or looking at any fundamentals, but rather just copying someone else because they seem like they know what they're doing. Real talk. Anytime you blindly jump into an investment because someone else gave you a tip, you're making the uneducated decision to basically entrust that person with all of your money Well, they have nothing at risk in the event that they're wrong. Look, we'll put it this way. If you feel comfortable giving that person your money and trusting them with it, then by all means go for it. But if you wouldn't trust that person with the passwords to your bank account, then you probably shouldn't trust them with your money and how you invest it either. Instead, I think you should listen to as many different perspectives as possible, understand why they're making those investments in the first place, decide if those investments are worth it for you. And then if it fits with your investing philosophy, go for it. Otherwise it's probably best to do absolutely nothing. Next number five. I know I'm going to sound like a boomer when I say this, but it helps to diversify. This means your entire portfolio isn't just stocks. It's not just real estate. It's not just cryptocurrency, but instead you spread out your money throughout as many different options as possible. Now I'll admit in my very early and young days on YouTube, I was so excited to be a hundred percent invested only in real estate. Like I worked all day as a real estate agent. I saved all of that money to buy real estate and if I had any cash left over in my account, it was just to buy more real estate. At that time, my profession and my investments were all within a 20 minute radius. And so far, really up until that point, it worked really well. And I thought, why would I do anything differently? However, as I began to expand my knowledge, I realized that I could get identical, if not higher returns while playing it way safer by spreading out my money throughout different options. And over the last six years, that's what I've done. My portfolio today is now comprised throughout international and U.S. based index funds, treasuries, cash, real estate, and a little cryptocurrency exposure through a Bitcoin ETF. Sure, I don't get the crazy high returns that someone who goes all in on one thing might get, but I do get the downside protection for when the market eventually does turn around. I just think for any long-term investor, this is probably something you should be doing sooner than later. After that, number six is something I have definitely been guilty of, and that would be holding on to too much cash. Yes, I'll admit this is pretty much the exact opposite of everything I've already covered here, but funny enough, this could also lead to some of the biggest financial losses in the form of opportunity cost. Look, don't get the wrong idea. It is important to have enough cash on hand to cover a three to six month emergency fund, pay down margin debt as needed, and have enough left over to cover anything else that might happen. But there is a point where you keep too much cash to the point where it negatively impacts your entire portfolio. That's because over time, you lose value in two ways. One, inflation slowly reduces the purchasing power of every dollar by two to five percent a year as the government prints more money into the economy. And two, you miss out on the profits you would have made had that money been invested. Look, it sounds weird, but I've seen people lose more money staying out of the markets, waiting for a crash that never happens, than the other person who buys in at the very peak and then watches their entire portfolio evaporate 30% in a few months. That's why I think if you're playing it too safe and constantly waiting for the market to crash for the perfect opportunity to buy in, chances are it's never going to happen. Either the market goes up and you miss out, or the market actually does crash, but you never buy in because you expect it to fall even further, but it never does. And you're constantly left waiting. Don't be that person. Instead, analyze how much you need saved in cash to survive the next six months in the event your income goes to zero, add in a bit of a buffer, and then just invest whatever is left over consistently on a regular basis. That's it. It's very simple. Finally, I've said this before, but please, never panic sell. I get it. There's nothing worse than seeing red throughout your entire portfolio and feeling compelled to sell it all now, wait for the market to drop even more, and then buy back in cheaper. But it never works that way. Instead, once you sell, it opens up Pandora's box and it becomes that much easier to start to sell this, sell this, time this. And as we all know, timing the market never turns out well for practically anybody. My rule of thumb is pretty much this, if nothing has fundamentally changed about your investment besides the price, don't sell it. If you don't need the money, don't sell it. If you're in a state of fear, don't sell it. If you don't have an immediate, better use of your money that you have more confidence in, don't sell it. Or I guess you could also look at it in reverse. Would you buy your current stock at today's prices if you could? If not, why are you still holding onto it? All of this makes you analyze every investment for what it is and why you bought it in the first place. And as long as nothing has fundamentally changed, it's safer just to hold onto it long term. As far as where we go from here, as long as you follow this outline, I tend to believe it's going to be very difficult to lose money long term. At the end of the day, investing does not need to be complicated and it doesn't need to be confusing. And some of these mistakes are things that every investor will have to go through at some point. But as long as you now know what to look out for and the mistakes to avoid, you're going to end up making so much more money long term. As long as you hit the like button and subscribe if you haven't done that already. Thank you so much and until next time.