For many, the stock market is an exclusive hobby for financial experts and seasoned professionals, leaving ordinary people hesitant to get involved. The difficulty of investing and the psychological barriers often discourage people from investing in stocks. For instance, quantum stocks recently plunged after Nvidia CEO Jensen Huang said that quantum computing technology was 15 to 30 years away from being very useful. So why is it that an immense number of people decided to sell their quantum stocks instantly from a single sentence?
First off, fear is shaped by our environment, culture, and past experiences. Many people fear losing money because it is heavily related to social exclusion and insecurity. There is also a sense of pride and regret that play a role when investing. People generally crave pride and avoid actions that will make them feel a sense of regret. Psychologists have proven that people act irrationally and make predictable mistakes when investing due to the financial stress of investing in stocks, which causes people to make impulsive and irrational decisions. Thus, CEO Huang’s simple comment made people panic and lose faith in the company, causing them to sell their stocks without properly considering the potential gains from the company. However, it is important to remember, “in the short run, the market is a voting machine, but in the long run, it is a weighing machine,” according to economist Benjamin Graham.
Additionally, with access to the internet, new investors are bombarded with data, real-time reports, and social media influences. All of these factors can contribute to confusion and indecisiveness. Technology and tracking apps can give investors conflicting advice, causing people to fall into psychological traps. Additionally, many expert opinions found online discuss personal views rather than analyses based on facts.
On top of that, many potential investors are discouraged because of their lack of experience and knowledge. The overwhelming amount of information about the stock market on the internet intimidates people, and since money is at stake, many want to be knowledgeable about stocks before investing in any. Not to mention, the complicated jargon on many informative websites creates a sense of imposter syndrome, further causing avoidance of investing.
Short-term gains and losses are also driven by emotional reactions. Financial gains are likely to release dopamine, which creates pleasure while losses create stress. This explains why many avoid long-term investing strategies and rely on short-term tactics. The joy that people experience from financial gains overpowers the potential long-term return they could receive.
“The overwhelming amount of information about the stock market on the internet intimidates people, and since money is at stake, many want to be knowledgeable about stocks before investing in any.”
Despite this, people should not be afraid to build a stock portfolio. Resources like Robinhood and Fidelity offer beginner educational resources and minimal entrance fees, allowing new investors to start small. This prevents the fear of extreme losses that usually deter people from investing. Additionally, data has proved that most markets tend to grow over time. As long as people are willing to play the long game, there is a high probability they will gain profit, and these long-term investing tactics require little research.
The psychological obstacles when it comes to investing are inevitable. Many investors fall into a panic and only focus on short-term gains and losses, losing the bigger picture. By understanding common mistakes and utilizing online resources, anyone can be a successful investor. With patience, building a stock portfolio can be rewarding over time, proving that the fear of investing is based more on perception than reality.
