Wendy Myers | Head | Securities | PSG Wealth | mail me |
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 most individual stocks result in losses over the long term.
This finding emerged in a recent article by Hendrik Bessembinder, which analysed the investment outcomes of 29,754 common stocks listed on the US public markets from 1926 to 2025. The study measured both compound buy-and-hold returns and shareholder wealth creation in dollar terms. It found that long-term investors in nearly 60% of stocks experienced a reduction in wealth over the period.
The uncomfortable truth about stock picking
In my opinion, first-time investors are especially vulnerable to underperforming stocks. Without a clear understanding of basic valuation metrics, such as P/E ratios and cash flow, it is easy to fall victim to meme stocks. Many investors mistake a popular brand for a good stock.
A recent example is the SPCX, which completed its initial public offering in June. The share has experienced notable volatility and has fallen by more than 20% from its high because of its connection to Elon Musk.
At the same time, many beginners do not understand the importance of risk mitigation and diversification. As a result, they 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. Consequently, new investors take on extreme risks in hopes of achieving instant and outsized returns. The truth about stock picking is that successful investing rarely happens overnight.
Behavioural biases then compound these knowledge gaps. Fear of Missing Out (FOMO) and herd mentality drive investors to buy hot stocks at their peak simply because everyone else is doing so. This behaviour locks in immediate downside risk when the hype fades.
Loss aversion means that the psychological pain of a loss is twice as intense as the joy of a gain, causing beginners to panic-sell at the bottom. Furthermore, confirmation bias leads them to seek information that supports a bad investment while ignoring warning signs.
Finally, the overconfidence effect means that early beginner luck can breed false confidence and encourage larger, riskier bets without proper research. The real danger, however, lies in how these factors interact.
Common investment mistakes
A knowledge gap leaves an investor without a clear strategy for assessing whether a share is worth buying, given the prevailing entry price and potential upside. When the market inevitably dips, behavioural bias takes over. Investors either panic and sell at a loss or stubbornly hold onto a fundamentally broken stock in the hope that it will eventually break even.
There are a few common mistakes that I see repeatedly:
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Lack of diversification
Putting too much capital into a single stock or a very narrow sector significantly increases risk. 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.
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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 and irrational decisions.
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Failing to factor in fees and expenses
Not paying enough attention to product and platform fees can erode returns over time. For example, exchange-traded funds, or ETFs, carry fund-level fees that are captured in the Total Investment Cost (TIC). Investors may also face account or platform administration fees. Trading and brokerage costs also matter, including bid-ask spreads, which represent the difference between the price at which you buy an ETF and the price at which you can immediately sell it. This invisible fee acts as a cost to the investor when entering or exiting a position.
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Emotional decision-making
Panic selling during market downturns, or panic buying during market bubbles, are classic emotional traps. Selling during a dip locks in losses. Successful investing requires a long-term plan that can withstand temporary market volatility.
Managing risk for long-term success
As investments begin to perform well, investors should systematically manage risk rather than react emotionally. Rebalancing across asset classes restores your portfolio to its target allocation. It does this by selling portions of assets that have outperformed and buying those that have lagged. As a rule of thumb, I recommend holding no more than 5% per counter.
This approach does not mean selling out completely. If you have done your research and remain confident in a share’s long-term growth potential, staying invested is often the better course of action. The truth about stock picking is that patience, discipline, and diversification matter far more than chasing the next hot stock.
For beginner investors who are starting their journey, I recommend speaking to a qualified financial adviser. An adviser can guide you in choosing a platform or a suitable approach to investing in securities. This guidance helps ensure that you make appropriate investment decisions. Ultimately, the truth about stock picking is that building wealth usually depends on consistent and informed decision-making rather than speculation or short-term excitement.
