"East Asia Economy ONLINE Column" Illusion of individual investors

Good morning, this is Matsushita.

Every Sunday, I deliver a column on topics related to investment.

Today's theme is,

"The Illusion of Individual Investors."

Beginners in investing will inevitably experience this illusion at least once.

If you worsen, you may remain unable to escape this illusion,

not recognizing the truth of investing, and you may end up leaving the market.

What kinds of illusions exist in investing,

to escape from those illusions,

please read.

【Column】 Makoto Matsushita’s Investment Inquiry

Episode 208: "The Illusion of Individual Investors"

In investing, applying leverage magnifies the swings in profit and loss.

Individual investors who do not understand money management are always exposed to large risks,

and as a result, both profits and losses become larger. If you continue investing,

the market environment may be favorable, and unrealized gains may expand day by day,

and large profit-taking may continue.

A person who had been earning tens of thousands of yen per month as a company employee

begins to think they can earn hundreds of thousands of yen in a single day, and starts to illusionedly believe that

it’s much easier and bigger to make profits from stocks than from working for a company.

There are two reasons why this is called an illusion. First, as I wrote earlier,

this investor deviates from proper money management and takes on excessive risk.

When things go well, they become intoxicated by large profits, but once a loss occurs,

losses grow large and they fall into the bottomless pit. The second reason is that the profits accumulated up to that point were

not the result of the investor’s own ability, but a byproduct of market conditions. Even if profits were earned for several months,

that does not mean profits will continue indefinitely.

Thus, today as well, many individual investors remain in illusion. Most of them cannot escape from it and end up losing funds and exiting the market.

To wake up from this illusion and escape, one must learn money management,

and reduce trading size and risk, adjusting profits and losses to one's own capital.

Investing does not guarantee quick and large profits;

instead, recognize this and steadily, slowly grow your profits.