Common myths around investing in the stock market
Have you too ever been subjected to common myths raised by people regarding the stock market? Well then this blog is for those of your contacts who believe rumours that float around while investing in the stock market. Today we talk about the most common myths that investors have in relation to investing in the stock market.
1.‘I will lose all my money if I invest’ This is often a worrying scenario for the newbie investor who has a limited amount of money to invest. This type of investor feels that irrespective of the stock that he/she invests in, his/her money is bound to sink. Such people resort to investing in secured Fixed Deposits as they feel their money will be secure there only. In this case, investors should always keep in mind that while investment in equity is highly liquid and hence comes at a significant risk:reward ratio. If thorough research is done by the investor regarding the company’s balance sheets, promoter holdings, and then accordingly he/she invests then there is very less scope for anything to go wrong.
2.‘Stock market is nothing less than gambling’ This is one prime reason that pushes many people away from entering the stock market. Many investors believe that investing in the market is merely gambling and there is no work to be done. This statement stands wrong. Investment in the stock market means meeting demand and supply. When you invest in a stock, you become the owner of the company. Moreover investing involves doing research and placing your trust on the company that you see growth prospects in it.
3.‘Fallen stocks shall rise again’ Now this is the biggest worry. Many people investing in the market believe that buying a particular stock at its 52 week low is the best and smartest way to earn money. However they usually do so without any thorough background research and fail to try and understand the underlying issue as to why the stock is at such a low level. This practise is a very risky proposition for your capital as there could be major reasons behind the drop in its share price such as: huge debts, a whistleblower or even a possible company closure!
4.‘Stocks that hit their all time high, will come down too’ The law of physics does not apply to shares in the stock market and is irrational. Now this one is on similar lines as the earlier pointer. Some investors feel that stocks that hit their 52 week high will eventually come down too, as ‘no stock can keep making highs forever’. To be noted by our readers is that the highs that a stock makes is mainly dependent on company financials and performance. If a company is stable and yet strong in its performance, chances are that it may not drop too low down from it's all time high. One such example of a strong stock is Infosys limited, which keeps making new highs and never fails to impress investors.
5.‘If I invest in bluechips I’m safe’ While bluechip stocks may be safer than the other stocks available on the index, it may not always be true. Investment in blue chip stocks must also be done after thorough research. There are several stocks in the US market which despite being bluechips have been falling. Some examples are: Ford, Bank of America and Boeing.
6.‘Investment in the stock market involves alot of hidden charges’ Some investors claim that investing in the stock market involves high brokerage charges and alot of hidden costs. In order to come up with a solution, several banks these days have come with prepaid brokerage plans with brokerages starting at very low rates.
To address this hidden charges issue, several banks have made their charges much more transparent to investors to avoid confusion.
Hence we can conclude by advising all our investors and readers not to believe in myths created by people and instead focus on doing strong research and gaining proper knowledge before investing in the stock market. After investing it is recommended to stay updated with the latest happenings to stay informed about how your investments are doing and hence you will be able to call out any rumours floating around easily. We also recommend our readers to have a look at our blog to get the most precise and relevant information relating to the finance world by clicking on the link below: