The Fundamental Reasons for Losing Money in Investment

There are many reasons why people lose money in investments. Some individuals may have executed numerous successful trades, yet their accounts still end up in the red. This leaves them frustrated, feeling as if they cannot escape the cycle of losses.

In reality, it’s often not that there aren’t enough “winning investments,” but rather that the number of losing trades is too high. The profits from successful investments fail to offset the losses incurred from failed ones, leading to a negative account balance. This is the fundamental reason behind losing money in investments.

Two concepts come into play here: “winning investments” and “losing investments.” Losing investments are easy to understand—they occur when a trader makes a mistake, often driven by impulsive, blind, greedy, or fearful emotions, leading to buying when they shouldn’t or selling at the wrong time.

So how do we define winning investments? Essentially, they are the investments that you aim to execute perfectly. For example, if you believe a market trend will rise significantly—let’s say 30%—and you aim to earn 60%, achieving that goal would qualify as a winning investment. Similarly, during a bull market, if you expect a stock you hold to double and it does, that is also a winning investment. This is akin to achieving an A+ in an exam, getting a perfect score or at least a score above 98.

If you review your investment history over the years, you will likely find several such records of successful trades. So, why are you still losing money? As mentioned earlier, the number of losing investments is simply too high and completely erodes the profits from your winning investments.

While we are eager for winning investments, they are often hard to come by. They result from countless swings and misses, yielding only a few exceptional hits. Thus, you shouldn’t live by the expectation of having winning investments.

What you should focus on is reducing the number of losing investments. By minimizing those losing trades that drain your funds, the profits from your winning trades can remain in your account, allowing for gradual positive growth.

At its core, investing is a “loser’s game.” To win, you must first learn how to lose less. If you can minimize your mistakes or keep your error rate low, you stand a better chance of winning against your competitors.

However, those who enter this game are often driven by desire and greed. They fail to realize that losing money in investments isn’t due to a lack of winning trades, but rather because of their numerous mistakes. Even more concerning is that they remain oblivious to this, continuing to chase after winning investments.

Caution is never a mistake, especially when it comes to your hard-earned money. Take a moment to reflect—are there many trades you could have skipped? If you had done so, would you have incurred fewer losses?

If you recognize this issue, make corrections immediately. Learn the right investment philosophies and methods to escape the cycle of losses. As long as you stay on the right path, you will reach your destination eventually. As Wang Yangming wisely stated, “Though the mountain may be steep, just take one step.” Focus on taking every step correctly, and you will naturally reach the summit.

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