If you’re eager to get into the stock market because you’ve heard it’s a fast-track to wealth, think again. The reality is that the majority of individual stocks result in losses over the long term.
This was revealed in a recent article by Hendrik Bessembinder, which analysed the investment outcomes of 29,754 common stocks listed on U.S. public markets from 1926 to 2025. The study, which measured both compound buy-and-hold returns and shareholder wealth creation in dollar terms, found that long-term investors in nearly 60% of stocks experienced a reduction in wealth over the period.
In my opinion, first-time investors are especially vulnerable to underperforming stocks. Without a clear understanding of basic valuation metrics like P/E ratios and cash flow, it’s easy to fall victim to meme stocks, mistaking a “popular” brand for a “good” stock, a recent example is Space Exploration share (SPCX), a Nasdaq listed share that IPO’d in June which has seen notable volatility (decrease of more than 20% of the high) due to the connection to Elon Musk. At the same time, not understanding the importance of risk mitigation and diversification means beginners often concentrate too much capital in a single volatile asset or sector. Added to this is the dangerous belief that the market will deliver quick riches, leading new investors to take on extreme risks in hopes of instant outsized returns.
Behavioural biases then compound these knowledge gaps. FOMO (Fear of Missing Out) and herd mentality drive investors to buy into hot stocks at their peak simply because everyone else is doing it, locking in immediate downside risk when the hype fades. Loss aversion means the psychological pain of a loss is twice as intense as the joy of a gain, causing beginners to panic-sell at the bottom. And confirmation bias leads them to seek out information that supports a bad investment while ignoring warning signs. Finally, the overconfidence effect means early beginner luck can breed false confidence, leading to larger, riskier bets without proper research.
The real danger, however, lies in how the two interact: a knowledge gap leaves an investor without a clear strategy on how to assess whether a share is worth investing in, given the prevailing entry price and possible upside. When the market inevitably dips, behavioural bias takes over, causing them to panic and sell at a loss, or hold stubbornly onto a fundamentally broken stock in hopes of it “breaking even”.
There are a few common mistakes I see repeatedly:
- Lack of diversification. Putting too much capital into a single stock or a very narrow sector increases your risk significantly. If that specific company or sector underperforms, your portfolio takes a massive hit. Diversifying across various sectors, asset classes and geographies can help manage concentration risk and smooth out volatility.
- Ignoring risk tolerance. Investing without understanding your personal risk profile often leads to portfolios that are either too aggressive or too conservative. If a portfolio’s volatility exceeds your psychological tolerance, you are much more likely to make panicked, irrational decisions.
- Failing to factor in fees and expenses. Not paying enough attention to product and platform fees can erode returns over time. For example, in ETFs there are fund-level fees captured in the Total Investment Cost (TIC), as well as account or platform administration fees. Trading and brokerage costs also matter, including bid-ask spreads – the difference between the price you buy an ETF for and the price you can immediately sell it for. This is an invisible fee that acts as a cost to the investor upon entering or exiting a position.
- Emotional decision-making. Panic selling during market downturns – or panic buying during market bubbles – are classic emotional traps. Selling during a dip lock in losses. Successful investing requires a long-term plan to ride out temporary market volatility.
As investments begin to perform well, it is important to systematically manage risk rather than reacting emotionally. Rebalancing across asset classes restores your portfolio to its target allocation by selling portions of assets that have outperformed and buying those that have lagged. As a rule of thumb, I would recommend holding no more than 5% per counter.
This, however, does not mean selling out completely. If you have done your research and are confident in a share’s long-term growth potential, staying invested is often the better course of action. For beginner investors starting their journey, I recommend speaking to a qualified financial adviser who can guide you in choosing a platform or a suitable approach to investing in securities to ensure you make appropriate investment decisions.
Written by Wendy Myers, Head of Securities at PSG Wealth