Trading Myths That Need to be Busted Right Away!
MYTHS
In today’s contemporary world, everyone wants to be successful which leads to great competition everywhere. Every individual here wants to earn money as well as invest money in prospective ways. People invest money in a lot of ways in order to get returns.
Previously, trading was done offline, that is, through broking houses and officials — you may have seen the original ‘trade floors’ in movies like ‘Trading Places’ and ‘Floored’.
Now, where everything is getting digitized, it is done through the internet. It provides an independent, broker-free approach to stock market trading. It is a fast process wherein transactions can be made in a matter of a few seconds, without being at the mercy of the stock broker. Gradually, online trading is immensely becoming popular nowadays.
Stock prices are changed everyday by the market. Buyers and sellers cause prices to change as they decide how valuable each stock is.
We definitely hear a lot of unrealistic and outright things when it comes to the stock market. It is important for us to be aware of what are the myths and what information is actually true. We shouldn’t blindly follow every news just because it warns us about something, this can lead to incorrect investment decisions.
Below-mentioned are the most common myths that can deviate you from making rational decisions:
- A low stock price means the stock is undervalued
The stock price is not related to its value. A stock price is a cost to buy a tiny share of ownership in a particular company. The value is determined by the amount of profit that company provides you compared to the cost of the same.
Instance: Once a company had the stock price of 8.65 and my friend dropped the thought of buying it, simply because he thought, if the price is so low what will he get? But then he saw the highest value of it, i.e., 88.67 cr.
2. Stock market is not for an average investor
There is no second opinion on the fact that a person with less experience is bound to make some mistakes. But that doesn’t mean that he/she should simply give up on buying stocks. Any person investing should have patience and discipline, as well as some prior knowledge because investing takes time. But if you are committed to learning new things and what mistakes are to be avoided, the long-term rewards make it worth it.
3. Buying according to the news buzz
Buying hot issues that the news depicts might not always be a good strategy. Hot stocks with a lot of investor value are often overvalued because of the huge buzz created and everyone is trying to buy their shares. Eventually, they have a tendency to come crashing down. However, news can be followed to gain some insight or suggestions and then think it over, but it is not advised to follow the mob and pour your money where everyone is.
Instance: On 13th August 2013, Carl Ichan an American Businessman made the announcement of his Apple position. Within minutes Apple stocks gained $17 billion.
4. Investing is time consuming
Beginners think that investing requires trading 20–24 hours a day and constantly being glued to news channels. This is not true and is a myth. It is true that investing requires time but you certainly don’t need to put in so many hours.
Instance: A lot of people don’t even try to invest just because of this myth and end up losing out on the boon period that might be beneficial for them. They think it is stressful, my own family member thought so, but then after 2 months he cleared up his mind on this and invested.
5. Hunches
During the course of our everyday lives, we sometimes trust our intuitions and we flourish. But stock market investment is totally different, we need to think logically and rationally rather than merely following instincts, otherwise regretful decisions can be made.
Instance: A conversation between two friends, Rohan and Vishal. Vishal- “The gut is pretty dumb to be making serious decision though, any decisions made without passing through higher thought processes and based on “feelings” is generally a bad idea. You probably didn’t train your gut feeling because of how poor it is at prediction and accurate judgement. I applaud your past 30 years experience of rational thought. Relying on gut feeling is a good way of getting conned.” The reason he said all this to Rohan is that he faced huge losses in the past 6 months, since he invested using gut feeling.
6. Investing=Gambling
This is the most common myth that people come across which never dies. Investing means when you put money into something you think has potential and is a means of productivity. Previous knowledge regarding investment is quite necessary. On the other hand, gambling is termed as a zero sum game. There is no concept of value here. The winner of the gamble simply gets the entire pot i.e. money is transferred from the loser to the winner. No value is created as no productive activities are undertaken. Thus, it is very wrong to confuse gambling and investing, and this is one of the most important myths that need to be debunked.
Instance: A friend of mine who really had keen interest to invest in the stock market someday, thought investing is gambling and never invested, also because his family too had this misconception and told her not to be a part of this. She lost a chance to get higher returns that year.
Be careful about every myth and fact. Try to differentiate between the two so that you don’t end up making the wrong decisions and lose out on a certain profit. If you would like to discuss or rather debate myths vs. facts with our co founders, drop us an email for a riveting conversation on connect@dalalstreet.ai!
