What are biggest delusions that beginners have in stock market?
Before
you investing or trading in the stock market thinks twice whether you should
invest in the market or not. However, Indians are always doubtful of the stock
market. A well-planned trade or investment can be very rewarding and help you
to get financial freedom. Those who avoid investing in the stock market lose a
great opportunity of wealth creation. This happens mostly because of their
misconceptions about the stock market.
Stock
market provides everyone a great opportunity to invest and earn a huge amount
of money in return. To be able to make money successfully, here are few common delusions
that you should avoid:
1. Share
market is for the rich:
The statement
that the share market was only for rich people was the past case where the
brokerage fees were very high. After arrival of online stock trading platform and
discount brokers, the price per transaction became economical today than it was
ten years ago. You don't have to have a big amount of money to invest in the stock
market. Anyone with an internet connection, online trading account, and a
little bit of money can start investing or trading.
2. You require large capital
to invest:
Many believe that they need large sums of
capital to be invested to start investing. While it is important to have some
money that is required for an investment, it’s not necessary to have excessive
amounts. But it’s necessary if you expect
higher returns in profits.
3. Stock Market Investing is Essentially Much
Like Gambling:
This is one of the most commonly heard myth
when it comes to stock market trading or investing. And it is so popular that
this investing myth has become one of the theories in few places.
So, let’s compare the stock market and
gambling so that we can have some clear vision about them. First of all, both
involve money and element of chance. Second, Risk is involved in both gambling
and stock investing. Third, both involves uncertainty of winning or losing.
Most people after considering these three points and comes to the
conclusion that both stocks investing and gambling is same.
Now, let’s see the things from another point
of view and note the differences. Although blindly investing in stocks may ruin
your money, but successful investing can make you beneficial. The art of
investing is based on risk and reward. Investing allows you to take right
decisions, where gambling doesn’t allow anyone to change the probability. There
is always a 50% chance of getting a ‘head’ or ‘tail’ while gambling on a coin
toss.
4. You must be strong in financials to start
investing:
One of the common misconceptions about the stock
market is that you should be a financial mastermind to make profits in the
stock market. But in fact, it’s not necessary that you’d be from finance. There
is a simple rule in the stock market, higher the risk, higher potential to get
reward. When you see a company that you think can make huge profits in the
future, buy its shares and sell them when they have increased their price. It
is as simple as that.
5. It's a good
way to make quick money:
If you're an experienced investor investing
in a lot of companies and buying and selling lakhs of shares commonly, a small percentage
of change can pay a good sum of amount quickly. If you are new to investing,
you have to understand that the stock market can prove to be a platform for you
to make a huge amount of money. But it can also force you to lose all of your
money too.
Stock market is volatile and the trends are
changing frequently. Just because you have made a profit from a particular
stock doesn’t mean you’ll get the same kind of return from every stock.
6. Stocks
That Go Up Must Come Down:
The
laws of physics do not apply to the stock market, and there is no gravitational
force to pull stocks back to even. Although it is also true that stocks undergo correction for a period, the point is that the
stock price is a reflection of the company. If you find a great firm run by
excellent managers, there is no reason the stock will come down.
7. A Little Knowledge Is Better Than None:
Knowing
something is generally better than nothing, but it can be dangerous in the
stock market. One investor should have a clear understanding of what he’s are
doing with his money. Investors who do their homework become successful in the
market.
8. Investing on your own is very risky:
In general, risk comes from not knowing what
you are doing. Definitely, without proper education stock market is risky. But
with proper training and knowledge, anyone can increase reward and reduce risk.
9. Paying a professional
is better than making your own investing decisions:
Today people pay a lot to professional
managers just because they believe in this investing myth that hiring a
professional is better than making your own investing decisions.
But in reality, it differs. It’s a proven
fact that many professionals fail to achieve the benchmark return over a period
of time. Yet they charge a huge fee.
There is also a disadvantage of a money
manager. They can’t move money easily as you can during any market swing or
trend change. But a retail investor is not obliged to do so. He can easily buy
a stock where he sees the great opportunity.
Lastly, market managers need to answers to a
lot of board of directors and can’t take independent decisions. They care more
about the shareholders and their bosses than the public.
10. Investing is
simple. Just buy low and sell high:
This is one of the most common investing myths
among the non-investors. They think investing is simple. You just have to buy
low and sell high. What they don’t understand is that it takes years to learn
what’s high and what’s low of stocks. Even, if you get a good start and bought
the stock at a low price, it’s not easy to find an exit point.
11: You can’t make money with a crashing market:
As you know one investor can make money only in an up-trending market. But
for a trader the direction is not a problem. If the market is crashing, this creates
a golden opportunity if the trader knows where to short the market.
12: Market stability is the key to making money with stocks:
The more stable the market overall, the more money you’ll be making as
an investor. But traders look for massive movements, volatility is the name of
the game where they earn profits. When there’s a massive amount of volatility
within a stock, that stock is more attractive because a trader can trade it in
both sides.
13: High risk equates to high profits:
In some cases, a high-risk investment could
potentially provide a good return to the investor. But in real every high-risk
investment will not provide a high profit. This has been one of the most
popular stock market myths that have caused many to lose large sums of money.
It is also important to think about the potential losses from a high-risk
investment. You could potentially lose as much as you could gain from the
investment.
14:
Blue-chip stocks are the best way to invest:
I
can see why a lot of people take a lot of comfort and security from the idea
that blue-chip stocks are the only way to invest. After all, blue-chip stocks,
when times are bad, tend to maintain their value. They offer great refuge in
trying times. But the problem is, when the good times return, blue-chip
stocks remain in the middle of stock valuations.
If you’re looking for the best way to invest, create a portfolio that has a moderate amount of blue-chip stocks in large to protect against stock market crashes, because they tend to maintain their value in bad times. And in good times or in a positive market sentiment you should invest your money in growth stocks otherwise your money in terms of opportunity costs if you’ll restrict your portfolio only to blue-chip stocks.
It is
always beneficial to do your research and analysis instead of falling into the
trap of baseless myths. Although the stock market has its risks, the benefits
are equally rewarding. Once you open a de-mat or trading account you can
begin your online trading and investment journey with small amount. Hence, break
these myths and begin with your investment journey after doing research or with
the help of an advisor.
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