BIGGEST MYTHS ABOUT STOCK MARKETS
When markets
do well everyone just praises the whole euphoria and feel pride in its glory. But
when something like 2008 crisis happen or the bubbles are burst everything is
criticized and the most is stock market! Many investors
wonder whether or not investing in stocks is worth all the hassle. At
the same time, however, it's important to keep a realistic view of the stock
market. Regardless of the real problems, common myths about the stock market
often arise. Here are five of those myths.
1. Investing in Stocks Is Just Like Gambling.
This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Gambling is far more risky and illegal which is not the case with investing money in sharemarkets. Sharemarkets are also risky provided you are not cautious with your money.
This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Gambling is far more risky and illegal which is not the case with investing money in sharemarkets. Sharemarkets are also risky provided you are not cautious with your money.
2. The stock market is the
hub of big shot players only
Many market advisors claim
to be able to call the markets' every turn. The fact is that almost every study
done on this topic has proven that these claims are false.; furthermore, the
advent of the internet has made the market much more open to the public than
ever before. All the data and research tools previously available only to
brokerages are now there for individuals to use. If you invest regularly and early you can become
too a big shot.
3. Time
the markets-
Never time the markets. everyday is a good day for
investing. Just invest for long term and avoid making short
term profits. Do not bluff or blindly take
the stocks an investor should know the basic bulls and bears of the market
4. Fallen Angels Will
Go Back up, Eventually.
Whatever the reason for this myth's appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low is a good buy. Think of this in terms of the old adage, "Those who try to catch a falling knife only get hurt."
Whatever the reason for this myth's appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low is a good buy. Think of this in terms of the old adage, "Those who try to catch a falling knife only get hurt."
Suppose you are looking at two stocks:
- X
made an all-time high last year around $50 but has since fallen to $10 per
share.
- Y
is a smaller company but has recently gone from $5 to $10 per share.
Which stock would you buy?
Believe it or not, all things being equal, a majority of investors choose the
stock that has fallen from $50 because they believe that it will eventually
make it back up to those levels again. Thinking this way is a cardinal sin in
investing! Price is only one part of the investing equation (which is different
from trading, which uses technical analysis). The goal is to buy good companies at a
reasonable price. Buying companies solely because their market price has fallen
will get you nowhere. Make sure you don't confuse this practice with value investing, which is buying high-quality companies that
are undervalued by the market.
5. A little knowledge is
better than none
Knowing something is
generally better than nothing, but it is crucial in the stock market that
individual investors have a clear understanding of what they are doing with
their money. Investors who really do their homework are the ones that succeed.
Don't fret, if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
Don't fret, if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
The Bottom Line
"What's
obvious is obviously wrong." This means that knowing a little bit will
only have you following the crowd like a lemming. Like anything worth anything,
successful investing takes hard work and effort.
Think of a partially informed investor as a partially informed surgeon; the
mistakes could be severely injurious to your financial health.
BE WELL INFORMED BEFORE INVESTING
HAPPY INVESTING!!
P.S http://www.investopedia.com/articles/02/061902.asp