Share market is designed to transfer money from the active to the patient.

Warren Buffett

Statistically speaking 5% of trader/investors consistently make good money and rest consistently lose money. Some play with data can be found at these answers by different Quora members.

What percentage of people lose money in the stock market over several years?

How does share market works as layman’s point of view?

Suppose in a village , all villagers decide to make a common piggy bank. It is decided that anyone can put money in the piggy bank and take it out any time they want. Everyone will be issued a token, on which their present value shall be written in percentages of total shares held.

Total money will be invested by some privileged members of village to generate return and revenue. How much profit the piggy bank money is making shall be displayed on a board every morning. After seeing the price (profit or loss percentage), they can buy or sell their tokens to other people interested in buying the tokens (the new entrants who got excited by the news of profits).

Those investors who invested money on the basis of fundamentals when the corpus was very small earn the highest money. As prices rise and it becomes common knowledge that the piggy bank is earning huge profits, all the villagers who were never interested piggybank nor know any thing about business it operates, the cycles of business, the true future potential, invest money out of greed. These are the people who usually lose money.

  • Common knowledge (public news) can never let you earn money. Average investor makes loss everywhere and so would you.
  • Those who know the fundamentals of the markets know that when a lot of people are buying shares very fast, the prices will come down in near future as they are people who are here for quick money and would sell as soon as decent profit is achieved.
  • In share market only ‘patience’ wins.

Another important point about long term rule.

In a research it was shown that over long term horizon of 20 years, all good company shares were either at their life time high or only 1% less than their life time high.

Long term wins, always.