Myths to tackle while Investing in Stocks

Are you looking for a safe haven for warehousing your bucks that you could reap out huge economic benefits in the future? The image of the stock markets with the bulls and bears certainly crosses every investor’s mind when they explore the different investing options.

Despite the popularity of the stock markets (not to forget the contribution of the Wolf of the Wall Street and other similar movies) and the availability of the online trading facilities, the new investors are often unwilling regarding the stock investments. Contrarily, there are some who are over-ambitious dreaming to be a billionaire in a matter of months.

The fear or over-optimistic behaviour of the investors can more often be attributed to a range of myths that surrounds the stock market. The investor should tackle the varying myths pertaining to the stock market investing.

Investing is all about Gambling

How many times have you compared the winning probability in a casino with the profit chances in the stock market? Many investors consider the stock market return as a matter of luck. However, in reality, while gambling is all about pure luck, investing returns depend upon building a balanced portfolio based on an investment framework.

The past historical data, the current economic and geopolitical situations and the ongoing condition of the organization can be used to assess and evaluate the stocks. The future projections are more based on time-tested investment strategies and not merely rolling the dices.

Little Knowledge can make you a stock market expert

The proverb ‘Little Knowledge is a dangerous thing’ holds strikingly true in the stock market scenario as it may push the proud investor towards the brink of financial loss. Overconfidence stemming from lack of knowledge could turn out to be a lethal combination for the investors.

The stock market analysis requires a significant amount of technical knowledge and expertise that cannot be gained by a few months of trading or through the ‘Googled’ Knowledge. However, many investors fail to realize the criticality of technical expertise and make wrong investing decisions.

The picking of the right stocks does not only call for sound technical knowledge but also a good behavioural understanding. The investors in order to avoid such kind of overconfidence bias can try the dummy stock market platforms. It is always safe to lose virtual money rather than our hard-earned one.

The dividend is the absolute indicator of stock attractiveness

Many investors fall into the trap of ‘High-Dividend Paying’ stock when evaluating different stocks. The mere percentage of return offered by a particular stock may not be a failsafe criterion, as a novice investor would like to believe. An experienced investor would know that companies that enter into lower or no growth phase might not consider paying a dividend to its investor, while an investor who is looking for capital appreciation might not necessarily benefit by investing in such companies. To put it professionally, it might not fit the investors “mandate”.

The businesses with good growth potential might defer payment of dividend for long time durations and deprive a dividend seeking investor opportunity to participate in its growth story. The hasty investor might overlook such crucial details and miss out opportunities by being rigid.

Investing is for the Affluent Ones

Many investors consider that investment in stocks is only for the rich and not for the average earning people. You compare yourself with Warren Buffet or any similar industry giants and definitely, you are going fall short of money. However, for the investment in stocks, you do not need the million-dollar investments.

The investor can use a small percentage of their saving for making investments in the stock markets. The investors, rather than putting a huge single investment, could slowly and consistently increase their investment to increase their return over time gradually. Moreover, investments can also be conveniently withdrawn in times of need.

One can Become Rich Very Quickly

Our constant interaction with the entertainment media many a time infuses varying misconceptions among us that with time are regarded to be true. The movies based on the stock market often portray the quick financial escalation of the protagonist using the stock investment. While it creates euphoria among the audience, such instances are not true in a real-life scenario.

The stock investment is similar to the other kind of investments which offers a certain amount of return. As a majority of the stock investors are average earners who are constrained by limited access to relevant information, a slight market change in the stocks would not make anyone rich overnight. The over-optimism pertaining to the stock market should be forgone before making the stock investing decisions.

Banks are safer than stock Investments

The risk-averse investors favoring deposits in banks over the stock markets are quite frequently heard of. The prominent reasons cited for the bank’s safety is that the investor does not risk the chance of losing the money in the future. The fluctuations in the stock price are often the deterring factor pushing away the investors.

While the principle capital is safe in a bank, the impact of inflation is often overlooked by such risk-averse investors. The interest rate boasted of by the banks is often lesser than the inflation rate. Thus, despite everything moving as per the plan, the investor, in the end, loses the money without acknowledging it.

It takes a significant amount of time to Monitor stock movements

The buy/sell decisions pertaining to the stocks are often dependent upon the relative market movement of the stocks. The investors therefore, often assume that one needs to track every single movement of the stock for making the informed decisions. However, as an investor, one does not need to act as a day trader fastened to the screen and tracking the trading movements every single minute.

The investors can manage their portfolio by putting in 1-2 hours of weekly research or following an investment newsletter.

Conclusion

The stock market is neither a child’s play nor a battleground that needed to be treaded so reckless or avoided so badly. The hovering images created about the stock market and its functionality has been the major source of dilemma among the majority of the potential investors. The right knowledge about the stock markets and how it works are the key requisites for the investors. Initially, it is highly imperative that the investment in the stocks should be considered as an investment tool rather than rocket science for making the investor take informed decisions. The busting of the varying myths girdling the stock market is the principal necessity to allow the investor to make informed and better decisions.