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7 myths about stock market investments January 19 20217 most common myths about stock market investment

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7 Myths about stock market investments

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 market investments.

1. The Reality of Investment Risk

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.

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2. Investing in stocks 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 company's ownership.

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 for me.

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 time.

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 No.1.

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. 

Open demat account with Indira Securities and start investing in small capital.

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  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to ₹ 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost

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