Why Every New Investor Loses Money

The world of investing can be a hard place to navigate.

There’s lots of investments to choose from, and they all come with risk.

But, there’s nothing harder to control in the world of investing, than your emotions.

Emotions, like fear and greed, are why so many new investors…

• Lose money

• Get put off investing

• Never achieve financial freedom

And there’s one theory which backs this up.

I call this The Casino Theory, and here’s how you can avoid it to become a better investor.

The Aim of Investing

New people start investing every single day.

It’s something I’ll always recommend to everyone. Converting cash for assets is the only true way to build wealth.

But, what is the aim of investing?

What do you need to do, to be a successful investor?

The answer to this question isn’t the same for everyone. We all have different objectives when we start.

But, for the most part, the aim is to make a profit. Buy low, sell high.

Personally, this isn’t my exact objective.

I don’t plan on ever selling my investments. I’ll live off them.

But the overall aim remains the same.

When it comes to selling/utilising your investments, you want them to be worth a lot more than what you paid for them.

This all seems… obvious, right?

But, have you ever thought about the aim of investing before I asked?

I bet you didn’t…

For success, it’s important to acknowledge the aim of investing.

So, why are you investing?

It isn’t a game. You’re here to build wealth, one way or another.

But, the problem for a lot of new investors, is that this aim isn’t clear.

And this ends up leading to something pretty disastrous…

The Casino Theory.

Casino Theory

Most games in a casino have a rough 50/50 chance of winning.

Yet, only 14% of people who go to a casino ever leave with a profit.

How?

Simple. Human psychology.

Say you walk into a casino with $1,000.

Within 30 minutes, you’ve turned your $1,000 into $5,000. Ballin’.

Now, how many people would leave the casino at this point knowing they’d made a heap of money. Think about it…

Very few.

You’ve turned $1k into $5k. Surely this means you can turn…

• $5k into $25k.

• $25k into $125k.

• $125k into $625k.

Greed kicks in, and before you know it, you’ve lost all your money.

And now, you have no choice but to leave the casino… because you’re broke.

The only signal people get to leave the casino… is when they run out of money.

It’s the same with investing. The problem?

Most people don’t know when to stop, call it day, and take their profits.

Emotions take over, and you end up taking on too much risk, thinking you’re invincible.

Before you know it, you’ve lost all your money.

Avoiding Casino Theory

I watched a great movie recently called Layer Cake. Despite being a movie about crime and drugs, it has some very wise one liners.

The main character says one line which is short, yet so sweet…

Have a plan, and stick to it.

No plan? No success. Fail to prepare? Prepare to fail.

Investors lose money because they don’t have a plan to take profits.

In the end, the only reason to stop is because they lost all their money.

This is how casinos make their money.

Not by rigging bets, but by exploiting your emotions.

For a lot of people, the only cue you get to leave a casino…

Is when you run out of money.

Think of this when you start to invest, and go back to those 7 words in bold.

Because if you don’t have a plan, you will lose.

Thanks for reading! Be sure to subscribe (it’s free!) for more financial wisdom every week.