13 May 2020

Top 10 Myths in Stock Market

By DICC Institute

There are many myths in the minds of individuals regarding the stock market. The stock market is often represented as the enemy of the people, a kind of sphere where only financiers can earn money.  Let’s take a look at the long list of myths on the stock market in the minds of the individuals today. Also a stock market course conducted by DICC in live market hours will further clear your doubts and myths about stock market.

Myth # 1: The stock market is only used to speculate

False! The stock market is above all a source of financing  for companies. Without the stock market, companies could not finance their investment projects and grow. As a result, growth would be weaker and the unemployment rate higher. When a company wants to go public, it wants to share the investment risk with other investors. If the individuals are ready to bear the risk on their own, it issues bonds to finance itself to grow the company. Investors can even invest in Bond projects which are often safer but much less profitable.

Myth # 2: The Stock Exchange consist of Nifty 50 stocks

The vast majority of the stock market is made up only of the values ​​listed in the main indices (Nifty50 and Sensex) but not all the stocks are listed in Nifty 50. The Stock Exchange brings together a large number of other companies also consist of small and medium enterprises. The stock market ranges from start-ups to large multinationals, including even small family businesses. It is moreover the small and medium-sized enterprises which are currently listed in the stock exchanges

Myth # 3: Investment in the stock market is only for Rich People

There is a myth in the mind of people that only rich people can make investments in the stock market and not the middle class people would be able to make investments in the market which is completely false. Even with a small amount of money such with INR 500 or so, you can start investing in the stock market.

Myth # 4: Stock Market is Gambling like Casino

The stock market is not a casino. You must take care of your money and invest it wisely in the stock market. You should be aware of risk management on your portfolio. You cannot eliminate market risk but you can eliminate specific risk. For this, you must in no case risk all your capital on a share. When you hear people say “oh I made a big hit on the stock market, it brought me a max” is that they took too much risk. One day or another, these people lose. On the stock market, making consistent profits and performance is possible, but getting rich in small time is not possible! You must have realistic goals that are commensurate with the amount you invest. It is also essential to diversify your investments in several business sectors, and ideally in several geographic areas. Please note, good diversification of your portfolio protect you from the risk of losing your capital.

Myth # 5: The stock market is Quite Complex

The stock market is often considered too complex by many people. It actually depends on the financial product you are dealing with. If you choose to invest in options, warrants or certificates, understanding these financial products is complex. On the other hand, if you are dealing in cash on stocks, this is quite simple. You buy, the price goes up, you win. If it goes down, you lose. In addition, there are many free tutorials available today to train you in stock market trading.

Myth # 6: The stock market is too risky

I will not deny the fact that stocks market is risky, but at the same all the risk management is in your hands and if you do the investment wisely and safely than there is no risk but if you do speculative trades than certainly it is dangerous and risky. On the stock market, there are different types of securities that adapt to all risk profiles. If you have a low risk appetite, you can invest in defensive stocks with low volatility. To reduce your risk, you will also diversify your portfolio across several stocks and industries. So even if few stock collapses, only a small part of your portfolio is affected. As in all financial markets, investing requires respecting certain rules of money management (risk management).

Myth # 7: The stock market is a zero-sum game

The stock market is not a zero-sum game! You will tell me that in front of each buyer there is necessarily a seller. It’s true, but everyone can win (or lose) on the stock market. In fact, unlike Forex, you hold a share when you buy. If you sell it at a higher price, you win. If the share price continues to rise, the buyer of your share (the one to whom you sold it) will also gain on the transaction. There are therefore no losers in this case.

Let’s take another example. You buy a share at 15 €. The price collapses at 5 € but you have not sold your share…. So you have an unrealized loss of € 10 but no investor to gain € 10 on your back. You are going to tell me that whoever sold you the share for € 15 won them. Not necessarily, who tells you that this investor invested in the fall of the action? He may have simply parted with a stock he bought before you.

Myth 8: If I don’t sell, I don’t lose

It is a classic phrase from the average investor. This is what leads many investors to keep stocks falling apart on the stock market. It’s a big mistake! If you are losing on a stock but have not yet sold, your loss might increasing day by day. Also your amount in your trading account gets blocked and you will not be able to make further trades. This is money you no longer have in your wallet.

Myth # 9: On the stock market, you can only win on the upside

It’s wrong. You can buy a stock or sell it short through the Short selling.  For a small additional commission, you can therefore bet on the fall of a share and can earn profits. 

Myth # 10: Good companies share are already too expensive to buy

Undervalued actions, there are plenty of them and in all sectors of activity. It can be small, medium or large businesses. Without going into the details of complex calculations, a company is undervalued if the growth potential is not taken into account, if its market capitalization is lower than its assets….

In addition, when the stock markets correct, good stocks also see their stock prices fall. These are good opportunities to take a stand on value. As Warren Buffet said: “Better to take a stand on an exceptional action at an attractive price than on an interesting action at an exceptional price”.

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