A variety of myths prevail in the stock market and these are enough to beguile any investor, but it is important that one keeps a realistic view of stock market. Let us bring into light some common stock market myths that generally dominate common minds.
People believe that investing in stock market is almost akin to gambling. This myth keeps a lot of serious investors away from the stock market. But what people forget is that while investing in stocks, people are taking well informed decisions by buying legitimate securities of companies that give them partial ownership of those companies.
Another prevailing myth is that the stock market is for the privileged few, the brokers and a handful of rich people, who can manipulate it to play in their favor. But this is absolutely not true as no power can claim to influence the stock market wholly. On the contrary, with the advent of Internet, stock market has now reached the general masses more than ever before. Company data are now open to public scrutiny. Actually, individual investors are nowadays more powerful than institutional investors as they are not bound by time constraints and can afford to play long term.
The belief stock prices that go up will definitely come down and vice versa is also a myth. There are companies that continue to create value for both shareholders and customers and have continuously seen new highs. On the contrary, there are infinite examples of company shares falling down from sky-high positions and eventually the companies have gone out of business thus bankrupting all their shareholders.
It is also a myth that one can start investing in the share market with little or no knowledge. Stock market is not about choosing shares blindly and playing by luck. There are data that have to be collated and analyzed and charts and graphs that have to be studied carefully. It is advisable to invest in share market on the basis of well informed decisions. The better informed you are the better are the chances that you will succeed.
It can be easily assessed whether a stock is cheap or expensive by its price to earnings ratio. This fact is absolutely a myth. PE ratios are most listed in newspapers and published in public media regularly as it is easy to calculate. It is not possible to know about company fundamentals from PE ratios and they tell us nothing about a stock’s value.