This article brings common stock market investing myths and misconceptions to the spotlight.
Whether you just started investing and saw a 10% decrease in your portfolio or you’re scared and confused to begin with, don’t worry, the stock market will not turn you into an overnight dumpster diver anytime soon.
It’s easy to get carried away by negative emotions once you start paying attention to negative people.
Try not to make investment decisions based on random stock market forecasts, they will set you up for failure.
There is no crystal ball method to predict the market, even though some may be more accurate than others, stock market forecasts are still pure speculation based on trading trends.
Market corrections are in fact bound to happen and they shouldn’t be mistaken with crashes, they’re two different situations with the same outcome, a market recovery, the key difference is the time it takes for the market to reach its previous peak.
Both the 2008 stock market crash and covid-19 taught us to be patient and cemented the following statement: what goes down, must come up.
I recommend you to start learning the stock market before taking any third-party assumptions as true facts, information will shed some light on your fears and enhance your ability to navigate the market shielded from traps such as pump and dump schemes.
Without further ado, these are 5 common stock market myths that shouldn’t be keeping you from investing:
Myth Number 1 – Stock Market Will Crash
Allow me to make a quick comparison between the stock market and health conditions.
If you’ve ever found a brand-new blister sitting on your body and became worried enough to perform a google search before paying a visit to your doctor, then you’ve felt what is like to be saluted with instant cancer.
The same instant illness effect often strikes the stock market, every time a given stock suffers a sharp increase, a flock of nervous individuals piles up spreading toxic news of an imminent crash bringing the stock’s value down.
Oftentimes, even experienced investors buy into these negative waves and start selling their shares, sinking the value further.
Taking this into account, a sudden drop is not indicative of a stock’s true value falling in place, but rather a product of panic and insecurity.
The market never performs equally, price swings are granted and so are the bad feelings creeping through one’s investment journey.
Unexpected free falls in the stock market are myths, there must be a strong cause behind a domino market crash, usually, these come labeled with prior red flags presenting investors the opportunity to jump out just in time before massive losses hit them.
Myth Number 2 – Stock Market is Gambling
The circulating myth combining the stock market with gambling has many wondering if putting their money at stake on a poker table isn’t more reasonable than investing.
It turns out to be just another born from loss myth that couldn’t be further from the truth.
Investing in the stock market in its essence is nothing like gambling, bought stocks represent ownership in a company, a claim on its assets, and a fraction of its profits.
The way you manage your portfolio is what determines if you’re investing or gambling.
Buying stocks of a company with huge potential expecting to see returns in 10 years cannot be called gambling, however, when the day trading route is taken, the line between investing and gambling becomes blurred, thus by day trading, you’re betting that a particular stock will behave in the desired way in a short span of time.
As long as one’s ability to invest with a long-term mentality fights the urge to start day trading, investing can never be compared to gambling.
Myth Number 3- Volatility Will Make You Lose All your Gains
To understand this is a false statement, it’s essential to know that price swings are a small part of an unfolding bigger picture.
Let’s have a look at Apple’s stock chart during the period of approximately 3 months
The value peaked at $143.16 on January 26th and is now down to $122.06 at the time of writing.
If you would have bought 100 shares at the peak on January 26th, you would have paid $14.316 (commissions not accounted for).
If you were to sell those 100 shares at the current price of 122.06$, you would be left with $12.206, taking a loss of $2.110.
Now, let’s have a look at the same chart over a 5-year period
The value was at its lowest at $23.18 on February 5th, 2016.
It’s now up to $121.05 at the time of writing.
Buying 100 shares at its lowest price on February 5th would have cost you $2.318 (commissions not accounted for).
Selling those 100 shares today would net you $12.105.
A profit of $9.787 and a return on investment of 422.22%.
Coming as no surprise, volatility couldn’t be responsible for any losses here, short-term investing and bad day trading would be the villain.
Stock market investing myths are responsible for great losses worldwide.
This is why you should aim for long-term investments and only invest what you can afford to lose, volatility becomes a small dent in a stock’s value over time.
Myth number 4 – Stock Market is Exclusive to Executives and Golfers
Raise your hand if you ever walked by a Gucci store and felt immediately overwhelmed just by looking at the showcase.
You probably didn’t even bother to come in, not because you lack confidence but because the expensiveness spoke louder.
At first glance, the stock market creates the same psychological impact.
The feeling of being too small or short on cash to invest is a common misconception.
It becomes more pronounced if you follow the news, everywhere you look the stock market is associated with executives, golfers, millionaires, suits, and ties.
This concept is true to some extent, the top 10% wealthiest American households owned 89% of the stock market in 2016, according to this article.
However, this doesn’t mean there’s no room to hop in for common mortals like you and me, in fact, investing was never easier and accessible.
No matter where you’re from or how much money you have in your bank account, you can start investing effortlessly from the comfort of your couch.
Most banks offer investment services but their investment options are limited or not aggressive enough to match expected returns, they might work on a commission and may not be affiliated with any investment management firms at all.
This is why there are plenty of other options to match your investing intentions.
If you’re known for taking big risks, cryptocurrency exchanges such as Coinbase or Binance may be the right place for you, beware though, the cryptocurrency market is still infant, it can bring you great returns in a short span of time but you can also lose your investments.
If you don’t want the hassle of managing your portfolio, there are robo-advisors that invest for you.
If day trading suits you better, Robinhood exchange has no trading fees, they won’t charge you for opening an account, maintain it, or transferring funds, however, Financial Industry Regulatory Authority (FINRA) charges Robinhood small fees for sell orders, these fees are passed on to customers.
Myth Number 5- You Need to Have Eyes on The Market 24/7
This is also known as trying to time the market, another recipe for disaster.
Ideally, one should be able to buy low and sell high but since the market is unpredictable, this is not a suitable strategy, otherwise, every single person would be wealthy by now.
There’s no point in having 10 side-by-side monitors with market charts trying to time your way in and out, you may get on a few lucky trades during a certain period but the likelihood of losing your profits over the course of the following days is high, especially if you’re a beginner.
Have a plan and trust your judgment, you should start by picking stocks of companies you’re familiar with and trust, these should represent the major percentage of your portfolio, after this step, diversify your investments as much as you can and move on with your day.
Repeat the process when you have new funds to invest, this way if a set of owned stocks crashes to $0, you won’t suffer devastating losses.
Why are you interested in investing?
Probably because you want to live comfortably later on and not because you want to buy a mansion today.
Day trading can be done and can also be profitable but it’s a commitment that has a steep learning curve, don’t even consider it if you value your money and your free time is close to none, it requires deep understanding and careful analysis of the market, self-control and a very strong strategy, it’s not advisable territory for rookie investors.
The Bottom Line
Investing is like any other subject that attracts curiosity, stock market investing myths distort its fundamentals in such ways that newcomers are left feeling hopeless.
Be the judge of yourself and keep external interferences at bay, the stock market is not a way to scam you out of your money.
Investing in its essence is a personal journey to slowly assemble your success rather than a casino to make a quick buck.
If you had any previous doubts about its effectiveness, hopefully, you’re now armed with a new perspective to start taking your first steps.
Want to know what are the best investments for 2021? Have a look at this article.