Many investors think twice whether to
invest in stork market or not. But before making any decisions one should
acquire adequate knowledge about the market and its proceedings. Myths can
influence one’s decision and can turn investment into losses. Dispelling myths
about stock market can change the whole trading scenario and can turn the
investors thinking around.
Here are 7 common myths about stock
1. Investing is risky
Investing is risky, so is driving a
car, swimming, riding a bike, walking on the pavement. We learn to do these
things with the guidance and help of our parents and trainers pretty early in
our lives. But often we ignore the importance to educate about handling,
investing and saving money which is a very essential skill for life.
Investment is indeed risky, only if
you ignore to learn about investments and still try your luck. If you do not
understand your risk appetite and risk involved in the process, investment can
thoroughly be dangerous for you. Like you would arrange a coach to learn to
swim, similarly you must educate yourself to understand investment
properly. Risk often comes form not being
aware of what you’re doing.
Educating yourself will eliminate
risk away from your investment decisions. So, investing in stock market isn’t
risky if you know how to do it in the right way.
2. Investing is gambling
Stock market investing differs from
speculating in the stock market. Gambling may imitate investing in stocks, but
these two behaviors are fundamentally different. Benjamin Graham, the father of
value investing, rightly said that a market is a voting machine (gambling) in
the short term, but a weighing machine in the long run. And investing is an
endeavor in the long run.
Shares are seen by investors as
merely a trading instrument, they certainly forget that the stock reflects the
In a corporation, a share of common
stock represents part ownership. It entitles the holder to an asset claim as
well as a percentage of the company''s produced profit. In addition, gambling is
a zero-sum game. Gambling merely takes money and gives it to a winner from a
loser. Investing and generating wealth should not be confused with the zero-sum
game of gambling. Investment cannot be compared with gabling.
3. I’m not rich, Stock market is not
To invest in the stock market, you do
not have to be a millionaire. The stock market is basically the only place
where you can start investing with a small initial capital. You need at least few
lakhs of rupees to buy a piece of property, even in a low-priced area, if compared
to real estate.
You don''t have to be a millionaire to
build wealth on the stock market, all you need is to start early and keep
investing regularly and let your money accumulate over a prolonged period of
4. The Younger you are, the more risk
you can take
Young investors tend to think about
taking high risk in order to make surplus and extraordinary profit. Although
the youngsters have greater number of years than an aged investor to cover up,
one should not fall for highly risky investments to book high profits.
Warren Buffett’s 2 Investment rules:
Rule No.1: Never lose money
Rule No.2: Never forget about Rule
5. Investing is straightforward. Buy
low, sell high.
This is one of the most common
investment myths among non-investors. They think investment is simple and
straightforward. You just have to buy when the price is low and sell it when it
reaches at a higher price. What they don’t understand is, it takes a lifetime
for investors to understand which share is closing on the higher side and to
what extent a share could fall. Even if you find a stock with low price, its
challenging to find an exit point.
6. High Risk = High Rewards
High-risk investments are not going
to promise high returns. On the contrary, you can only invest in a high risky
stock if it ensures high return. Such stock is hard to find. You can earn high
profits with moderate or low risk bearing stocks. Buy quality companies, run by
quality management, at a favorable price with ample of safety margin. So, you
are not taking a high risk by purchasing good companies at a cheap price.
7. FII’s are investing in this stock,
even I should buy this stock.
FII’s may buy stocks for different
purpose. They might buy to diversify their portfolio or they must be buying in
one account and selling it in the other. Arbitrage positions are created very
often by FIIs, i.e., long on equity and short on futures. Buying stocks without
looking at the essence of the transaction would take you nowhere. You should do
your own research work, identify your goal to invest and understand your risk
appetite before investing.