What are the biggest misconceptions people have about the stock market?
Posted by:- Thinking Boxx Team
July 10-2022 17:45 PM IST
People have a LOT of misconceptions about how the stock market works.
The first thing to know is that half the stocks don’t pay dividends at all.
So it’s not that they might “lose value”, it’s that they inherently have no value at all, and people might come to their senses.
It’s like if you buy a closed box for $1000, and you were assured that it would be something worth a lot.
And you open it…. And it’s empty.
Now the game is for you to quickly close the box again, and go: “Ooooooh wow!!! That’s insane! It’s worth much more than $1000!!”
Then, you sell the box to someone else, who in turn, will peek inside the box, close it immediately, and say: “Omg omg omg, you were right! This is worth sooooooo much, thank you so much for selling it to me so cheap!” Myth1: Investing in stock market is very risky.
If you believe stock market is risky, just look at Sensex chart from 1990 – 2018. In short run there will be surely minor hiccups but in long run it’s giving out enormous value.
Myth2: You need to have a strong knowledge about finance.
There are many people who are not even from finance background but they’ve worked wonders in stock market.
Vijay Kediya - Bcom
Porinju Veliyath - Law Graduate
Ramesh Damani - HR Specialisation
Radhakrishna Damani - Undergraduate
Myth3: Small investors like me cannot make money from stock market. You need lots of money to invest in stock market.
You can even start investing with 100rs only.
Story of Porinju Veliyath – Concept of value investing – “Concept was to find fundamentally strong companies with undervalued stock, buy them, hold it and when it reaches its full potential value, Sell it.”
“Find small and unknown companies with less stock price”
Myth4: Renowned companies can never give strong returns.
Understand this myth with large cap company Britannia,
Look always use common sense in stock market. Do you think there is any household in India who doesn’t purchase Marigold biscuit? NO! If Britannia comes up with new products there sales are going to go up and along with it there business will also go up and give out better return.
I am going to tell you a true story of my Friend Dinesh
A few days back, My friend visited Shivagange (a small town between Bangalore and Tumkur), a famous religious place. However, this place is also a favorite place for trekkers.
he trekked this mountain with my yoga batchmates on our last trip. It was a memorable experience.
This place has a lot of monkeys.
he had the experience of feeding food to dogs, cows, goats, etc. But I always thought monkeys were not so non-friendly with humans (that was my misconception).
But this misconception cleared on this trip as most monkeys were friendly in nature, and most of us played with them.
Have a look.
Image - he have some courage to give something to a monkey 😄
Image - Gang of Monkeys? 😂
Image - his Circus at the Mountain Top
Like his misconceptions about the monkey, people (primarily beginners) carry some misconceptions about the stock market.
But some of the most common include:
1) The stock market is too risky: Many people view it as a gamble, but it can be quite safe with proper research and a solid money management strategy.
2) Stock Market is Gambling Den: Many people think the stock market is that it's a place for gamblers. People believe they can just buy stocks on a whim and make a fortune, but this isn't the case. A stock market is actually a place where people invest in companies, and these investments can go up or down in value depending on how well the company is doing.
3) You need a lot of money to invest: While it's true that you'll need to have some capital to get started, you don't need nearly as much as most people think. There are plenty of ways to invest with very little money.
4) It's only for wealthy people: This couldn't be further from the truth! Anyone can invest in the stock market, regardless of their income or net worth.
5) You have to be an expert to succeed: Again, this is not true. While it helps to have some knowledge of the stock market, you don't need to be an expert to make money.
6) It's too complicated: The stock market may seem complex initially, but it's not. With a little bit of education and practice, anyone can learn how to invest successfully.
7) Luck is Needed: People think that stock market trading is all about luck and that you either get lucky or don't. But in reality, luck doesn't play a significant role in the long run. The most successful traders understand the game and make smart decisions based on data and analysis.
8) Penny Stocks give good Profits: Many people think penny stocks give good profits, but they don't realize that penny stocks are more volatile and risky. When the market is good, penny stocks will go up slightly, but they'll fall like a rock when the market crashes. Most people who invest in penny stocks lose all their money.
9) Blindly Investing in Past Winning Stocks: Many new traders believe they can pick a stock that has been doing well recently and continue to invest in it until it stops making them money. However, this ignores the fact that the stock market is constantly changing, and what works today might not work tomorrow.
10) Only Short Team Traders Make Profits: One of the biggest misconceptions about the stock market is that only short-term traders make profits. The truth is that long-term investors can generate greater returns if they hold on to their stocks for a more extended period of time. By buying and holding stocks for extended periods, investors give the company's management team more time to execute their business plan and create value for shareholders. This patience can eventually lead to higher profits down the line.
These are just a few of the many misconceptions about the stock market. If you're interested in learning more, do your research and work smart.
I hope this information is helpful.
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