What are the dark secrets of stock market?

You have probably heard many stories about how a person’s life changes overnight. But if you start looking, you would probably find more failure stories than success ones – stories of how the stock market ruined lives.

Here, I’m going to tell you about the various dark secrets of the stock market that both investors and traders must know before they enter the market.

Head i win, Tail you lose:

Believe it or not, the stock market is not only a game of buying low and selling high; it’s a game of being non-reactive.

It looks simple but is hard to follow because we humans are very reactive in nature. Here, you don’t have to think or regret, because that is how we are programmed through these long years of evolution. But the real problem arises when people who sit at the high table use these biases to fatten their pockets.

Such individuals are also called market manipulators. Market manipulators use various methods through which retail investors get stuck in their trap and end up losing huge amounts of money. Here are some methods they use:

Pump and dump: this schemes are one example, in which a stock’s price is artificially inflated by such manipulators through false or misleading statements via various channels like social media, SMS, email, calls, etc. When it reaches their desired height, they sell it and book huge profits. Meanwhile, retail investors either end up selling at a huge loss or, in the worst case, holding those stocks until their value reaches zero.

Insider Trading: Some market participants, especially big players in the stock market, attempt to benefit from material and non-public information that could impact the stock price once released. Even though this practice is illegal and unethical, it still occurs. If you stay active in the stock market, you’ll notice many stocks whose prices dramatically change before the news becomes public.

High-frequency trading(HFT) and Algorithmic trading:

It refers to the use of sophisticated algorithms and computer programs to execute a large quantity of trades (buy or sell) in fractions of a second. This practice improves liquidity in the market, which means how quickly you could convert your shares into cash.

It was also the main reason why I don’t believe in technical analysis. The reason is simple: if you engage in technical analysis, you’re competing directly with such large institutions and high-net-worth individuals who have spent huge amounts of money to build programs or algorithms that outperform you.

These algorithms are so advanced that they spot emerging trends in milliseconds and execute orders before retail investors can blink their eyes.

You need to answer this question: Why are such large institutions investing huge amounts of money to build such high-cost programs, and from whom are they going to recover their ROI? This program is nothing but a money-making machine for them. Remember, “Paisa sambhalna, paisa kamane se bhut muskil hai”.

Overvaluation and Bubbles:

Fear of missing out on the next big thing, herding behavior, and so on influence investors to believe that there is no high price for growth stock, and they are willing to pay such high prices. This leads to overvaluation and the formation of bubbles. When these bubbles burst, they wipe out nearly the entire wealth of investors.

As an investor, we need to remember that a bull or bear run never lasts forever. If you’ve bought stocks at fair value, then don’t worry if a bear run occurs or a bubble bursts because when this bear phase ends, you will not only recover your losses but also gain a fair return. However, if you’ve bought shares at high value, then you must remember that if the fundamentals of the stock are good, it may take many years, like 10-15 years, to recover only your losses. But if the fundamentals are weak, your entire investment could become zero.

Addiction of Buying or selling frequently:

Even if you are not a trader and invest in the stock market, you are not completely immune from this problem. Nowadays, a new trend has emerged in which traders start calling themselves short-term investors.

Frankly speaking, there is no such thing as a short-term investor because a real investor is more like a businessman who doesn’t care much about share prices in their day-to-day life. Instead, what bothers them is whether their company is doing well or not. Therefore, you also have to adopt the mindset of a businessman and avoid falling prey to this mentality.

I recall one person whom I met when the market was down, and he kept urging one of our advisors in the office to advise him to buy some stocks. He continued doing so even after being told that there were no good stocks selling at fair prices.

I have seen many people in my life who became addicted to buying and selling shares. This addiction was not only financially destructive but also morally destructive.

Forget to live:

We Indians are very different from any other country in the world because we prioritize happiness over money. Though due to the influence of the outer world, we are now more focused on money, but something inside us still guides us to make morally and ethically sound decisions in our daily lives. This also reminds us of our vision: “Create a financially and morally strong society.”

But let me remind you that the stock market is like a double-edged sword. If used wisely, you could amass more wealth than you could imagine, but if used foolishly, it can push you into such a dark pit that you may not even see the light of hope. And believe me, trading and F&O is using the stock market foolishly.

So, this are few dark secrets of the stock market and if you are on the wrong side, you will probably soon forget how to live.

While these aspects of the stock market may seem daunting, it’s essential to remember that investing can still be a valuable tool for building wealth over the long term. By educating themselves and exercising caution, investors can mitigate many of the risks associated with stock market investing.

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