Stock investing is most dangerous when you become an 'intermediate' investor. Why you can't win even with more knowledge
In stock investing, the most dangerous people might not be beginners who know nothing, but ‘intermediate’ investors who have gained a little knowledge.
You have learned to read charts.
You can analyze corporate performance.
You understand the meaning of moving averages, trading volume, and various indicators.
Yet, you are not making the profits you expected.
In fact, even though you should be more cautious than before you started studying, for some reason, you still lose.
As I continue to invest, I sometimes think about this contradiction.
Increasing your knowledge and becoming able to win in the market are not necessarily the same thing.
I believe there are pitfalls that are easy to fall into precisely because you are an intermediate investor.
1. The more knowledge you gain, the more you see the same landscape as everyone else
When you are a beginner, stocks you bought without really understanding them may occasionally rise significantly by chance.
Of course, that might just be a lucky punch with no reproducibility.
However, the situation changes as you gain experience.
“This chart is dangerous.”
“This is a chance to buy the dip.”
“It’s an uptrend, so I don’t want to miss out.”
Because you have knowledge, you start to be able to find reasons for market movements.
However, there is a pitfall here.
The opportunity you found might already be seen by many other investors.
You rush to buy after good news comes out, only to get caught at a high price.
The stock price plummets on bad news, and you panic-sell near the bottom out of fear.
Both can occur as a result of being influenced by the movements of those around you.
Of course, the judgment of the majority is not always wrong.
The problem is that even if you think you have analyzed the information yourself, you are actually buying and selling based on the market atmosphere.
② Overcoming the intermediate wall is more about action than knowledge
So, how can you overcome this wall?
I believe that whether you can stick to your own trading conditions is more important than increasing your knowledge.
For example, in a situation where stock prices have plummeted.
Even if those around you are pessimistic, if the decline in low prices stops and the continuation of buying can be confirmed, there is room to consider purchasing.
Conversely, in a situation where prices are soaring day after day.
No matter how strong a stock is, do not force yourself to chase it if the purchase conditions that match the risk are not met.
If you are making a profit, do not judge based solely on the expectation that it will rise further; instead, lock in your profits at a pre-determined level.
And above all, the most important thing is to do nothing if the conditions are not met.
In the market, buying and selling are decisions, but ‘waiting’ is also a valid decision.
Even though many people understand this as knowledge, it is difficult to execute when faced with actual price movements.
That is precisely why I believe this is where the difference is made.
3. Going against the majority does not guarantee a win
There is something I do not want you to misunderstand here.
That is, becoming part of the minority is not an end in itself.
‘Buying because everyone else is selling’
‘Selling because everyone else is buying’
This is simply contrarian trading.
There is a reason for a decline, and there is momentum behind a rise.
The market is not so simple that going against it will always yield a profit.
What is truly necessary is not to act in opposition to others, but to ensure that your trading is not controlled by the judgments of those around you.
For that reason, I believe that three checks before trading are important.
– Why am I buying? Is there a basis for it, rather than just emotion?
– Where will I exit? Have I decided on the conditions under which my assumptions will collapse?
– Is it really necessary to buy now? Do I have the option to sit it out?
If these three points remain vague, no matter how much market knowledge you have, you will be easily swayed by price movements.
Summary | Increasing your knowledge alone will not make you a winning investor
The more you study stock investing, the more you realize how deep it is.
However, just because your knowledge of the market increases, it does not mean your profits will naturally increase.
Even if your analysis is correct, you will lose if you get the timing of your purchase wrong.
Even if your direction is correct, failing to manage your funds can lead to significant losses.
Furthermore, the more confident you are in your own judgment, the harder it can be to admit when you are wrong.
That is why, after acquiring knowledge, the next step is to translate that knowledge into calm action.
Do not panic even when those around you are in a frenzy.
Make calm judgments even when those around you are pessimistic.
If your assumptions fall apart, be honest enough to withdraw.
What is needed in the market is not to act like someone different from the majority, but to stick to your own rules.
Knowledge is a weapon for increasing the accuracy of your judgment.
However, whether or not you can make use of that ultimately depends on your own actions.
The wall for intermediate investors is not a wall of knowledge, but a wall of action.
I would like to continue facing the market without forgetting this.
Thank you for reading until the end.
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※This article is intended to share a way of thinking about investment and does not recommend the buying or selling of any specific stock. Please make investment decisions based on your own financial situation and risk tolerance.