Friday, June 7, 2013

Stock Market Investing Myths

Stock Market Investing mythsInvesting in stock market is a great way for anyone to make money without the usual overheads and headaches of owning and running a firm or a company. However, to invest in stock market one needs a certain amount of knowledge, skills and proper information. Without proper information or wrong information and lack of discipline many people especially newbies who enter the market with lack of knowledge lose a lot of money. 

The following are the stock market investing myths that people needs to be cautious of while trading in stock market.

Investing in stock market is like gambling:
This is one of the main reasons why many people stay away from the stock market.  There are a certain similarities between the two. You can make and lose a lot of money in a very short time.  However the similarities are only superficial and there are some fundamental differences between the way gambling and stock market works.  Buying a stock of company gives you the right to claim on the assets of the company and also on the profit it generates for the fraction of your share. Gambling on the other hand is a zero sum game. It just takes the money form a loser and gives it to the winner. In gambling, no value is created but in investing the overall wealth of the economy is increased. If one invests in stock market without following the rules of Stock market, then like it is gambling but if one learns the fundamentals of investing in stock market, knows what he is doing and analyzes before investing then investing is not a gambling.

Stock Market is only for rich people:
The other myth people have is that only rich people and stock brokers can make money in the stock market but stock market is a place where anyone can make money as long as they know how to do it. In this internet world everyone have access to the same information, there are so many websites that provide access to rich data, statistics, research tools and even analysis of stocks. Therefore even ordinary people with limited money can start investing with a small amount and make money from it.

Stocks that go down will come back and Stocks that go up will come down:
There is an old saying in investing “What goes up must come down and what goes down must go up” which is irrefutable truth.  The problem is many people confuse with this conventional wisdom with the assumption that price of the stock is going down it is low and when the price of the stock is going up, it is high. The law of gravity doesn’t apply to stock market.  There is no reason for a stock to come down with an excellent company with great product and services and are run by efficient people. The same applies to companies that are poorly managed with less demand product and services, with declining stock prices may never recover.

There are lot more myths on stock market. Learning the stock market can help everyone invest wisely with informed knowledge and information to make consistent profits.