Receiving many viewpoints and thoughts while listening to stock market discussions was illuminating. Many people are exposed to enormous amounts of information via blogs, news, publications, and several venues. This information becomes clunky when people need help distinguishing between facts and misconceptions.
Most people are cautious about investing in stocks because they need clarification about what it involves. One thing is sure as we try to sort out what is real and what isn’t in this article so that your money may work for you: the stock market has continuously helped those who understand how it operates to accumulate sustainable wealth.
If you concur with the simple truth that, over time, the stock market aids investors in accumulating money, let’s go on a walk to clear up some common misconceptions.
- To succeed in the stock market, you must be able to time the market.
This particular misconception has drained the funds of many investors. It’s crucial to understand that market timing has never contributed to long-term wealth creation and never will. The wisest course of action for most of us is to refrain from attempting to market time because perfect market timing is virtually unattainable. Develop an approach instead, and start investing as soon as you can.
Investors who practice market timing try to purchase equities just as their prices are about to increase and sell them just as they are about to decline. This tactic has a lengthy history of failure. Don’t make forecasts regarding future prices because doing so could result in loss; instead, develop a long-term strategy that will enable you to endure.
- If you want to succeed in the stock market, you should gamble.
Investors who adopt the misconception of treating stocks like gambling will almost certainly fail to accumulate money in the stock market. We must be made aware of what the stock market stands for. It denotes ownership of a piece of a business, not merely a trading platform. When you own something, you try to find methods to make it work rather than using it as a gambling chip.
Please don’t gamble with your hard-earned money lest you lose it; gambling transfers funds from a loss to a winner. Always keep in mind that investment increases an economy’s overall wealth.
- Investments are for the wealthy.
A decade ago, investing was a privilege reserved for the wealthy due to the prohibitively expensive broker fees that only a select few could afford. Today, however, many online brokerage accounts charge little or no commission. Even those with limited resources can now invest more efficiently than ever before. With just a few thousand nairas, you can support and have a customized, diversified investment that suits your needs.
The most critical factor in investing is time, not wealth. Thanks to our “friend” compounded returns, your investment will grow regardless of how much (or little) you invest. Therefore, the idea that you must be affluent to begin investing is false.
- To build wealth in stocks, you must be a finance expert.
Many people aren’t taking advantage of a fantastic opportunity to make money in the stock market due to the notion that the stock market is for financial geniuses. If someone commits to it, is patient, uses tactics, and approaches investing correctly, they can make money in the stock market.
You can hire a financial expert to ensure a smooth investment journey if you don’t have the time or energy to learn the ins and outs of investing.
- Buy shares at extremely low prices; the price will rise eventually.
One of the riskiest decisions an investor can make is to believe in equities that haven’t increased in value in months with the hope that they will ultimately do so. After doing your homework, purchase stocks at a fair price, but don’t buy them because they are outrageously cheap.
Let’s say you are comparing two stocks:
Around 150NGN was the all-time high for BB last year, but it has since dropped below 100NGN per share.
CC is a minor company, but its share price has increased from 50NGN to 100NGN.
What stock would you invest in? Contrary to popular belief, most investors prefer the stock that has declined from 150 NGN because they think it will eventually rise to those prices again. Such thoughts are incorrect.
- It is a good investment if it has a history of solid performance.
Undoubtedly, a people’s history significantly impacts their current situation. But another fallacy that frequently leads to many investors choosing the wrong companies for their portfolio is forecasting and exclusively relying on previous performance and expecting that past success will reproduce.
When choosing stocks, make sure that the company’s financial performance, plans, portfolio, etc., constitute the foundation’s core.
- Choose winning stocks.
In some investors’ pursuit of the “winning stock,” the majority have lost their hard-earned money. Going with a stock just due to its status as a “winning” stock in the past or even later, or because it’s given a great portrayal in the news or media, can be detrimental to your portfolio and your risk tolerance.
Past “winning” performance does not ensure that similar returns will occur in the future. Secondly, if the stock proves to be high risk, as previously stated, your chances of losing are higher than with a stock that may have the potential to produce similar returns with lower risk.
- The returns increase as the risk does.
Some equities require a riskier strategy to generate greater returns. However, basing all your investment decisions on the assumption that riskier stocks would generate higher returns without conducting adequate research is a sin against the investing gods.
This misconception is popular advice for new investors when they first enter the stock market. That’s only partially accurate, though. High-risk investments never promise high returns and have a more significant danger of loss than low-risk investments. Therefore, resist the temptation to pursue high-risk stocks mindlessly out of a desire for extremely high profits. Consequently, it’s crucial to first grasp your risk tolerance before investing in the stocks whose associated risk your appetite permits you to accept.
- When you sell stocks, you only lose money.
When they “lock in” the trade by selling, some bearish investors think they haven’t lost money.
It holds some degree of truth. You wouldn’t lose money on the investment if you knew the stock would rise again and could wait to earn a profit before selling.
But in actuality, your stake in the company is now worth that amount once your investment in the stock has lost value.
It’s okay to keep your money invested in the stock. But by allocating your funds to that position, you are choosing to be passive.
It’s also okay if you decide to sell. You’re actively choosing to transfer the funds to a different use.
Whatever you choose, you will only have the purchasing power currently allocated to the position.
- Follow your instincts.
Failure in the stock market starts with making decisions about your investments based only on gut and feelings.
Stock market investing is more of an analytical than an intuitive endeavour. Numerous psychological biases deceive us and lead to poor investment choices. As a result, you should approach the market more rationally than emotionally if you want to be a successful investor.
To Sum Up
Before making an investment decision, gather all the information and avoid having a limited understanding of the stock market.
Most of the time, existing and potential investors are prevented from taking full advantage of the stock market and generating significant returns due to their blind belief in several widespread misconceptions about it.
Conversely, people who reject these beliefs and place their faith in their knowledge and in-depth analysis stand out from the crowd and succeed as investors.
Therefore, it’s critical to dispel these widespread stock market misconceptions before and even after dipping your toes into the world of stocks if you want to fall into the second type of investors, i.e. successful investors.
