um effort. It is truly a fallacy and a flawed view about profiting from the stock market. 

Let me illustrate how most people lose money in stocks: 

1. They buy stocks to earn capital gains, not dividend yields. This is because the profits from capital gains are more appealing than dividend yields. 

2. Unconsciously, they opine that good stocks are ones where their stock prices are moving upwards. This opinion can be further substantiated with favourable news, reports, and comments about these stocks from different sources, online or offline and either official or unofficial. 

3. How do they know that the stock is a good one? Answer: They look at charts. If a stock has risen in prices, then, it is a good stock as it is moving upwards. If it is rising, they opine that it will move higher in the future. Fearing of losing their bandwagon, they would make their purchase for the stock. 

4. Two things would most likely happen. First, it rises further. Hence, the people who bought into it are feeling great about themselves as their ‘investments’ are working. So, they would buy more at much higher prices. This is referred to The Greater Fool Theory for their capital gains are reliant on having more people or ‘fools’ to buy the same stock at higher prices. 

5. Second, its stock price may fall. The people who bought into its shares would either hold onto them as they believe that its stock price would ‘recover’ in due time. If it does not, they would sell their stocks to cut their losses and conclude that stocks are risky investments when, in fact, they are speculating. 

The odds are not in favour of these speculators. Why? This is because they tend to buy stocks after their prices went up significantly. This means, if the prices of their stocks rise further, they make lesser capital gains as compared to the ones who bought them earlier. Also, if the prices of their stocks fall, they incur higher losses as compared to the ones who bought them at lower prices earlier. 

That is why most traders and speculators do not last long in the stock market. 

How to Make More Money if Stock Prices Rise and Lose Lesser if Stock Prices Fall than Other People in the Stock Market? 

Benjamin Graham, a mentor to Warren Buffett, a living investment legend once quoted, ‘Investing is most intelligent when it is most Businesslike’. Thus, instead of treating shares like lottery tickets, we should assess the investment potential of a stock as if we are going to be a long-term partner of the company. 

True investors are cash-flow orientated. When they view a stock, they will want to find out its business model, its management team, its track record of earning profits and generating cash flows, its cash-in-hand and its future plans to utilise its cash-in-hand to generate more profits and cash flows into the future. This is usually Step #1 in stock investing. 

Step #2 is about valuation, an art to assess if the stock is cheap or expensive. Its method of assessment involves calculating valuation ratios of a stock such as its P/E Ratio, P/B Ratio and Dividend Yields and comparing its with its past ratios in the last 10 years or comparing its with its peers of the same industry. As such, it encourages investors to buy good stocks when they are undervalued and avoid any investments which are ridiculously overpriced. 

The odds would be in favour of investors because they are encouraged to invest in stocks when they are undervalued, which mostly happen when the prices for their preferred stocks fall in the stock market. So, in the event their stock prices increase in the future, they make more money. If the stock prices decline in the future, they lose less money as compared to others who bought them at higher prices in the stock market. 

Conclusion: My Personal Views on Market Fluctuations

In short, I view market fluctuations as a friend to investors but a cruel enemy to speculators. This is because huge market fluctuations enable investors to invest into great businesses at absurdly undervalued prices and provide opportunities to dispose of them if they are ridiculously overpriced. It enables savvy investors to ultimately build long-term wealth and passive income from stock investing. 

But, the road to investment success requires one to begin by learning, studying and mastering investment skills like accounting and stock valuation. Most don’t have the desire or time to learn and practise them by themselves. As such, they should not be investing their money into the stock market. 

With that being said, if you wish to learn more about stock investing, we have a 90-minute webinar session where we would discuss how massive profits can be made from investing into good stocks safely at the right prices. 

https://kclau.com/investment/how-to-deal-with-market-fluctuations-when-investing-in-the-stock-market/