Why It’s So Difficult To Make Money In The Stock Market

An Unemployed College Graduate’s Irrelevant Opinion

This is a post written by Avishai Shuter, and up-and-coming zoologist who lives in his parents house while waiting to hear back from the Bronx Zoo.

About a two years ago, I decided I wanted to get some experience in the market. After doing some research, I created a TD Ameritrade online account (they were the first company that didn’t require a Social Security card for signup, and as a college student away from home, I didn’t have mine) and bought $1,000 worth of stocks. Two years later, my portfolio is worth about the same as a result of significant losses but equally significant gains. So what have I learned?

Why Casual Traders Get Hammered

The stock market wasn’t designed for college kids with $1,000 to wager, and as a result, isn’t especially friendly towards them. I started investing, as many people do (whether they admit it or not), fantasizing about stumbling onto a stock that would make me millions overnight. But, I quickly learned, it simply doesn’t work that way. In order to make real money in the stock market, you need to start off by investing a sizable amount.

Starting with $1,000 simply won’t do it. The expensive stocks of well-known companies don’t have swings as large as smaller, less reliable companies do. So I could have taken my money and bought two shares of apple, thereby risking about $600 in order to make about $30, in addition to the $9 a trade I was being charged (this was an actual scenario when I first started out). And even if it wouldn’t be the riskiest move in the world, it would have been a waste of time. In order to justify that type of investment and time, I would have needed to invest way more at the get go.

Unless you have the money to buy a few hundred or few thousand shares of Coke, or Apple, or Google, where strong returns are as close to a guarantee as you get in this business, it just isn’t worth it. So why do casual traders get hammered? Because they’re casual. They simply aren’t putting up the money needed to make back money they could potentially live off of.

The House Always Wins

You know why joe-shmoes don’t make millions in the stock market? Because they don’t put millions in. In a system which is essentially complicated gambling, many of the big players are also making the rules. And, same as in a casino, the house rarely loses. Casual traders simply aren’t privy to the information required to make decisions resulting in million dollar returns, nor the bankrolls required to take advantage of the information even if they had it.

So what’s the main thing I learned?

The main thing I took away from this learning experience is that in order to make a significant amount of money in the stock market with the stock of giant, dependable companies, you better have the money and the will to buy a few thousand shares.

Otherwise, I just can’t see the justification for buying those types of stocks. On Wall Street, it seems to me that casual equals increased risk or don’t even bother. But I’m by no means an expert. Happy investing.

Why It’s So Difficult To Make Money In The Stock Market

Sweating the Big Stuff

8 thoughts on “Why It’s So Difficult To Make Money In The Stock Market

  1. Excellent point Daniel! For example, if you invest say, $100 in a stock, but had to pay $7 for the trade, your expense ratio is already 14%!

    You’d have to make $114 now to just break even!

  2. The title mentions making money in the stock market, while the story focuses on trading. There is a difference between trading and investing.

    Of course it is difficult to make money trading large companies that are in the maturity portion of the business cycle and have few if any of those price swings, that is why they are most often called “stalwarts”. Where you can make the money on such companies is by investing in those that pay high dividend yields. Even if the prices do fall, the dividends will at the very least provide a buffer for those losses, and on the high end will boost your gains in good times. And, in actuality if you reinvest those dividends you have a pretty good shot at coming out quite a bit ahead over the long-term.

    1. @krantcents, however, there are corporations and institutions that offer mutual funds who have hidden charges; therefore breaking even is another issue you have to meet because of that.

  3. Well, even retail investors that put up thousands or even millions of dollars still underperform indices. So do professional money managers and some of the best hedge funds in the world (witness Goldman Sachs closing their esteemed Quant fund this week). It’s got more to do with the unpredictability of stocks and emotion than how much money is invested initially.

  4. For a young person out of college, $1000 may be a case of too little, too soon. In order to make money in stocks you need to have a few thousand first. As krantcents said, mutual funds are the way to go. Fees are lower and you’re not haveing to worry about diversification. But money accumulation is more important at this stage.

    A Roth IRA is perfect for young adults since you can build up cash ($5000 per year) and not have to worry about another expense–taxes.

    Once you have a few thousand dollars built up you can buy different mutual funds or stocks that will keep you from losing so much if one sector performs poorly.

  5. You’re on to something there but not everything. I’ve invested going on 31 years and yes, a person can make a whole lot with a thousand dollar but figure a hundred of that buying research reports and trading sub penny 0.0045-0.0095 on the OTC boards in an active way until you build up to ten thousand then go safer with penny stocks like today, AMD trading near two bucks and will come out okay in a year or so imo then with 50 thousand at that point, one is ready for the Apples and IBM’s. IBM is better than Apple btw insofar as owning a stock. They are a hundred years old and will be around long after Apple is out of business but Apple will be great the next ten or 20 years imo

    Just remember, OTC very risky, never put in more than can afford to lose, be active trading at first and know those charts. Never set limit orders to sell because money makers and others watch those and it helps them better trade shares and manipulate things. Never show your bottom line other than when buying, what price willing to pay not willing to sell. Do is quickly by limit order just below bid and ask and it goes through.

    Good luck. You have a lot figured out but don’t give up.

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