This is why people lose money on the stock market


On average, stock market corrections happen around once every 12 months.

In case you’d forgotten, we had one earlier this year on Wall Street, where the S&P 500 index fell 10 per cent from between 26th January and 8th February.

Fears about interest rates rising faster than previously expected were at the crux of that correction. Volatility, dormant for virtually all of 2017, suddenly and violently reappeared, the VIX jumping to its highest level since August 2015.

As with all stock market corrections, it was an unsettling time.

– How far would the share market fall?

– How long would the share market fall for?

– What happens if the bond market collapses?

– What if investors sold out of the dividend darlings en masse, as suddenly term deposits were looking attractive again?

Investors hate uncertainty.

Yet that’s exactly what you should expect when you invest in the stock market.

Although the share market rises over time, it doesn’t do so in a straight line. At the individual stock level, the uncertainty is greater, with one profit warning having the potential to slice 20 per cent or more off the value of your shareholding.

Facebook investors will know the feeling, shares in the social media giant recently falling almost 20 per cent in a single day.

As will holders of Eclipx Group (ASX:ECX), its share price plunging more than 40 per cent after the owner of GraysOnline warned profit growth would be less than expected.

Here’s why you can earn 10 per cent per annum in the stock market

Volatility is the price of entry to the stock market. The reward is above average returns — around 10 per cent per annum, on average.

If you want certainty, stick your money in a term deposit and earn 2 per cent per annum.

Here in the lucky country, we avoided the February 2018 stock market correction, the S&P/ASX 200 index falling around 6 per cent in that period.

But zoom out a little, and we haven’t been so lucky.

The ASX 200 index has essentially been in a holding pattern for almost three and a half years, gaining less than 5 per cent in total since March 2015, before dividends.

If it wasn’t for dividends, if you piled into the ASX in March 2015, you’d have been better off in term deposits.

Of course, the story is much different if you piled into the ASX in February 2016. Or if you bought some of the ASX tech stock market darlings, like Afterpay Touch (ASX:APT) shares or Appen (ASX:APX) shares.

The malaise in the Australian stock market is more stock specific, with many of our largest blue chips shares struggling to meaningfully growth profits — witness bank shares, Telstra (ASX:TLS) shares and even Woolworths (ASX:WOW), despite its share price performing reasonably well over the past 2 years.

This is why people lose money on the share market

It’s impossible to always buy shares at exactly the right time.

What is possible, is investing in shares in the first instance, and saying the course.

People fall down on both fronts.

– They don’t invest in shares because they are fearful of a stock market correction, or crash.

– And when they do invest in shares, they sell out when stock markets go through one of their inevitable periods of volatility — like we had in February this year.

The losses in the US stock market correction of February have now been officially erased. It took a little over five months, about the average amount of time it has taken in all stock market corrections since World War II.

As to when the next correction comes, and what causes it, is anyone’s guess. But given we’ve only just had one, and the global economy is ticking over nicely, my guess is it won’t come until next year. But that’s a total guess.

It’s tempting to sit on the sidelines and wait for the next correction. Or to take some chips off the table now, in anticipation of shares falling sometime between now and the end of 2019.

The stock market investing game you can win

But that would be playing a game of market timing. A game no-one ever has consistently won.

It’s a game Warren Buffett never plays. His Berkshire Hathaway has been buying Apple shares for a while now, again boosting his stake in the first quarter of 2018.

Berkshire Hathaway’s stake in Apple is now worth around $US50 billion.

Buffett himself is worth around $US85 billion.

Amidst all the uncertainty, one thing’s for sure — Buffett’s not sitting around waiting for the next stock market correction.

And nor should you. Investing slowly, steadily and consistently into the stock market is one game you can, and should, win.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at