Myths about stock market investments

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Investing your money in the share market in a well-planned manner can be very helpful and rewarding and help you attain financial freedom. People in India are a lot more scared while investing for the first time in the stock market. Approx 18 million investors in India invest in the equity market. But comparing it with countries’ total population the number of investors is pretty small. The question here is why most Indians don’t invest in the stock market. It’s because the majority of people don’t have the required knowledge of the share market and how it’s working.

Only a fraction percent of common people invest

India is the biggest and oldest stock exchange in the world but only 2.5% of the common population invest in stocks. This number is not enough as people should understand the importance of monetary independence. out of the 132 crore population, Only 8 crore people invest in mutual funds. Only 12% of the GDP of India comprises Indian open-end fund Market Assets.

One of the biggest mistakes that beginners make is going by the myths about the stock market. We at Bitolacapital have experience in investing and trading, and hence, we know how the stock market works. Therefore, in this blog, we will debunk the stock market myths that are completely useless and baseless. 

Investment Myth 1 – Investing Is a Complicated task And Meant For The Rich

This is the foremost and basic myth about investment. People generally think the investment is complicated. Surprisingly, investing can also be as simple as you wish to make it.

People also believe they need large sums of capital to be invested to get high returns in profit. But that’s not true. You don’t need a large amount of money, just some money is required for an investment. Also, you have an option to make small monthly installments in mutual funds as an online SIP investment.

Investment Myth 2 – Investing in stocks is like gambling

It is the second most myth that investment is just like gambling and money made from the stock market is based on luck. That’s not true. Investment done in the stock market is based on knowledge. Please understand, a stock is a part of ownership in a business, that owns and operates assets to make a profit. As the company makes profits its business value grows with time, and since you own a part of that business in the form of shares, your ownership grows proportionally.

So in order to invest in the stock market, research is the main key. First, you need to find a business with a good growth history in the past and future also.

Investing is simple but not easy. What does it mean? There are two aspects of investing, one is finding a good stock, and the second is staying invested in it for the long term.

Finding a good stock is the easier part of the story, to make a meaningful profit from it, you have to be patient and give your investment time to grow. Most investors do not have the stomach to handle the short-term volatility of the market. As soon as the price of the stock drops, most investors hit the panic button and bail out the market. By gaining some experience over time, it is possible to learn the art of finding good stocks and buying them at a cheaper price.

Investment Myth 3 – Investing is risky

Everything big in life is risky. Driving a car, swimming, riding a bike and so is investing. But only if you ignore learning about investments and still try your luck. Risk often comes from not being aware of what you’re doing.

Educating yourself will eliminate risk away from your investment decisions. So, investing in the stock market isn’t risky if you know how to do it in the right way.

Investment Myth 4 – Stock Market is All About Losses

To make profits, you require patience and a profound understanding of the market dynamics. There’s no denying that stock markets are volatile and quite risky. Nevertheless, only those who suffer losses who don’t have their basics right or people who panic and lack patience. Many investors exit investments following short-term volatility instead of looking for long-term benefits. 

Investment Myth 5 – The stock market makes you rich overnight

This is a total myth. Not only stock but any kind of investment cannot make you rich overnight.

Since stock is a part of ownership in a company and when the company makes profits, the stock prices appreciate. So It is practically impossible for it to grow overnight. Hence, not just investing but patience to hold is also an important aspect of investing.

Investment Myth 6 – Buy stocks that are in the news.

Some people Blindly buy stocks that are trending in the news because of increasing demand as everyone is trying to buy the share. This strategy may perform well in the short term. But the stock might see profit booking in the near future.

However, you can always keep an eye on what’s in the news, do some homework and make a decision. It’s not wise to simply follow the masses.

Investment Myth 7 – The Younger you are, the more risk you can take

People at a young age think about taking high risks in order to make a surplus and extraordinary profit. Although the youngsters have a greater number of years than an aged investor to cover up, one should not fall for highly risky investments to book high profits.

Do not forget Warren Buffett’s 2 Investment rules:

Rule No.1: Never lose money

Rule No.2: Never forget about Rule No.1.

Investment Myth 8 – High Risk = High Rewards

High-risk investments are not going to promise high returns. On the contrary, you can only invest in a highly risky stock if it ensures a high return. Such stock is hard to find. You can earn high profits with moderate or low-risk-bearing stocks. Buy quality companies, run by quality management, at a favorable price with ample safety margin. So, you are not taking a high risk by purchasing good companies at a cheap price.

Investment Myth 9 – Buying Life Insurance is an Investment

One of the biggest mistakes that people make in investing is to think that life insurance policies are investment products that offer them life cover as well. Not really.

Insurance policies are only risk management tools that will help your family in case anything unfortunate happens to you. So you should buy a term insurance policy to get a significant cover at a very low premium.

Instead, many investors end up buying insurance policies with a very low cover, because they are told by insurance agents that they would earn a guaranteed higher return and if anything happens to them during this time then their family would get a certain amount. This is a classic example of mis-spelling by telling a lie that is close to the truth.

Therefore, it is better to use investment vehicles like Mutual Funds to create wealth and buy term insurance plans to cover the risk. You would be better off like this rather than trying to mix insurance and investment.

Investment Myth 10 – You need to be smart and intelligent to invest in the stock market.

One Myth about investment and especially for stock investment is If you want to invest in the stock market you need to be smart and intelligent.

In Fact ‘You don’t need to be a rocket scientist. Investing is not a game where the guy with 160 IQ beats the guy with 130 IQ.’ – Warren Buffet 

To invest in the stock market, you need these 4 things.

  1. Research thoroughly about the company.
  2. Be patient as you will see results over time.
  3. Don’t get caught up in the hype and invest with discipline.
  4. Open a Demat account with a recognized broker like ICICI Direct, SAMCO, Upstox pro, and Fyers and start investing.

Bottom line

Always perform your research and do not fall into this baseless trap of myths. Although the stock market is risky, its benefits are rewarding. Once you open a trading account, you can begin your online trading and investment journey with small deposits. Hence, bust these myths and begin with your investment journey after thorough research or with the help of an advisor.

No matter what you do, if you do not have the right knowledge about the subject, there is a good chance to make silly mistakes. By educating yourself against the most popular myths, you can save a considerable amount of time, effort, and money that you would have otherwise wasted.

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