Wednesday, 25 September 2019

10 Stock Market Myths that You Need to Stop Believing Right Now

Most of us have faced situations where people have advised us not to invest in the stock market.
The "market" debate is full of delusions and misinformation. In fact, it is the misinformation that
prevails in the minds of a lot of people, that prevents them from investing and making the best
possible returns.
There are some commonly held myths about the stock market that need to be busted. This blog
is an attempt to deliver the truth to the common people.
It is also important for people to understand the true picture before they decide their strategy to
invest in stocks. As a savvy professional you should be aware of these stock trading myths if
you plan to invest in stocks soon.

1. Stock trading is like gambling
Don't deny it - you have heard this surely. But it couldn't be further from the truth. In gambling,
wild guesses are the norm and you are most likely to fail. But, if you meticulously research on
the stock market trends and analyse the current situation before investment, you will almost
certainly gain in the long run. An individual, who trades in stocks after reading the charts and
analysing them, is not a gambler, but a savvy investor.

2. Stock trading is for the rich 
Well, this is one of the most common stock market myths, which has no logical basis
whatsoever. People, who do not understand the functioning of the stock markets, believe that
it is only for the rich people, who can afford to take risks. They also think that it requires a lot
of money to begin investing in stocks. However, you will be surprised to know that everyone can
invest in the equity market, even with an amount as low as INR 500 every month. In fact, it is
way cheaper than real estate investment, which is a common trend among the middle-class
population.

3. Higher risk is equivalent to better returns 
Not always! According to many armchair financial advisers, if any stock has the highest amount
of risk, it is likely to produce bigger returns. But, that's one of the most prevalent myths about
stock trading, which needs to be debunked. You should invest only after a careful analysis of
the market and it's trends. You should also have sufficient knowledge about the fundamentals
of stock investment before you take a step forward. Risks will not guarantee better returns, but
smart investment, most certainly, will. Good companies become good companies if their
fundamentals are strong. And strong fundamentals are never risky.

4. Market trends will get repeated 
Not always! To decide what stocks to buy today, you should not only depend on the past
performance of the stock, but also on the current market scenario, predictable changes, and
your specific needs and preferences. If only past performance mattered, everyone would be
making a huge amount of money through stock investment, just by repeating history.

5. Share market investments can bring you quick money 
Patience and perseverance are considered important qualities for a share market investor.
Discipline is integral, coupled with knowledge and awareness. If you want to get rich faster, well,
the share market is not the place for you. It is a myth that investing in shares will bring you huge
profits in no time.

6. Invest in the best industry 
A knowledgeable financial advisor will never ask you to invest your capital only in one industry.
What was that about eggs and baskets? You should diversify your investment to minimize risks
and gain better returns on your investment with time.

7. SIPs guarantee loss aversion 
While SIPs have for long been associated with Mutual Funds, we are also beginning to see the
emergence of SIPs directly investing into stocks. But yes, SIPs cannot guarantee against loss.
The Systematic Investment Plans or SIPs have gained popularity in recent years, as they tend to
minimize risks caused by market volatility. However, they do not guarantee loss aversion. Of
course, they reduce the risks to some extent, but there is always a chance for the market to go
down, and SIPs cannot prevent that. Even if you incur a loss at a particular time of the
investment, you should stay invested longer and through various market cycles to reap the
benefits, which you will eventually.

8. It is a good bet to buy a fallen market darling
Let's turn to maths to illustrate the fallacy here. Suppose company X's stock price has fallen from
INR 600 to INR 80 per share and company Y's stock price has risen from INR 15 to INR 25 in the
same period. Which is the better get? Well, most people would invest in company X, believing that
it will gain back its previous position eventually. But cruel maths shows why this is a sure way to
burn through the capital See, X needs to rise about 650% to get back to its previous position. The
chances of such a rise are very slim. Hence, buying stocks from companies, just because their
price has fallen is not a good investment idea. The bottom line is, investment decisions should
not be made on prices alone. Although you should aim to buy growth companies at a reasonable
price, it is unwise to invest in a stock that has fallen drastically just for that reason.

9. Even a little market knowledge is enough for investing 
If you do not have adequate information about the market and you have no time to do extensive
research, you WILL lose your money. As we've said before, this is not gambling. If you want to
stand the chance to put your hard-earned money to work to generate returns for you then you
need to depend on research and an in-depth analysis of the market. It is best to hire the
services of an expert advisor, or, even better, to use high-tech software to keep yourself abreast
 of the most relevant information.

10. No stock goes up forever
Well, this is a field where gravity doesn't necessarily apply. Especially when you consider specific
time horizons, growth stocks have the potential to give you massive returns, even over a period
of time as long as a few years. Such stocks can help you generate huge wealth if you keep on
investing after understanding the market. Investors, who tend to withdraw whenever they get
significant returns over a period of time from these stocks, simply miss the opportunity to
exploit their full potential. The right stocks can always do better. The trick is identifying those
stocks. Consistent research can help you keep track of their growth and make calculated
investment decisions.
Think about this-By some estimates, about 20-25 million Indians are invested in the stock
market. If you consider Mutual Funds investment, another 82 million investors are participating
indirectly in the stock market. If stock market investments were so risky, why would so many
people still invest in them? However, investing blindly is not the right option. The key is
research and a comprehensive understanding of the stocks that make up the market. Knowing
 some of the prevalent myths about stock investment will also help you invest carefully and
achieve financial security.

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