6 Myths about Stock Market and Their Reality

Stock Market is a mirror image of the economy of any country. Stock market expresses the economic condition of a country. There is a vast scope to earn money in stock market. Many people consider stock market very lucrative while many consider it very risky. Most of the people are unaware of the stock market while many make loss here due to insufficient knowledge about stock market, or hurry to earn more and more at a short period. In fact, there are some myths popular about stock market. People actually do not know the reality behind those myths. Here we will clear out the common 6 myths about stock market and explain the real cause or explanation behind them.

Investing in stock market is like a gamble

Many people who do not possess proper knowledge about the stock market think that stock market is just like a gambling. They think that stock market and casino have no difference at all. They both carry risk of losing money, but the real fact is the stock market is the mirror image of the economy of any country. The stock market is a gambling for those people who undertake a risky action i.e., make investment without making use of fundamental analysis, technical analysis, qualitative analysis, profit and loss account, balance sheet etc. They usually tend to invest in those companies which are recommended by their friends or the morons sitting on business news channels or they are misguided by any source. So, please make use of the above said components to any company before making investment there.

The stock market is only for the people who work in Dalal Street

It is not necessary to be a part of Dalal Street. You do not need much academic education also to be an investor. Ace investor Warren Buffet says that any individual can understand what stock market is and how it works if he has done 10th standard maths. The only thing is that you need to read different books written by veteran investors and analysts. These books reveal the investment style, company analysis, investment strategy etc. After reading them you can understand what stock market is about and how it works. You will come to know what measures to adopt before investing in a company or stock. You can gather knowledge about the ways to analyse a company.

Investment is not necessary at an early stage

According to Albert Einstein compounding is the 8th wonder of the world. Actually, there is no ideal age to start investment. Ace investor Warren Buffet started investment at an age of 11 years, though he thought that he was too late. Many people think that they are too young to make investment in the stock market. But you need to start investment as early as you get your first income. So, if you start investment at an early age you will get higher return owing to the compounding effect over a long term.

Share market requires lots of money

Do you know that you can start investment with just as low as Rs. 500/-? Many mutual funds offer schemes where an individual can start investment with just Rs. 500/-. If you make an investment of Rs. 500/- per month over a period of 30 year then you will get a return of corpus amounting to Rs. 28 lakhs assuming 15% CAGR. So, start investment as early as possible with an amount of only Rs. 500/- per month.

Market is now very high, I will wait till it corrects

Sometimes it is seen that the market inches towards higher levels and individuals wait to make investment. They think that market will correct soon and they will make investment. Then after sometimes they will make money by selling the stocks which they buy at lower prices and sell them when these stocks touch lifetime high. This sounds delicious, but the reality is not like that as you think. The rule of gravitation does not applicable in the stock market or any specific stocks. If a company has best management team, good earning numbers then you should not consider the short term correction or volatility. The stock will yield better return in the long run. According to Benjamin Graham no one can predict the market. So, make small investment over a long period of time, it will enable you a handsome return in the long run.

Buy the stocks that have corrected to its 52-week low

People get tempted of stocks which have high price. Suppose, a stock is trading at Rs.500/- per share. Then after sometimes it comes down to Rs.50/- per share due to correction in the market. People think that this stock will again rally to its peak price of Rs.500/- within one or two years of span. But this is not going to happen all the time. The sharp correction in price may be due to the deteriorating in earnings, increasing debt in the market or heading to bankruptcy like Amtek Auto, JP Associates, Bhusan Steel etc. So you should first identify the real reason behind this sharp correction of -300% or higher.

Let’s make it clear with an example.

In June 2018, Reliance communication was trading around Rs. 36/- per share. Since June, the stock as well as the market has gone into correction and in October 2018, the stock is trading to its 52-week low of Rs. 11/- per share.

In June, 2018 Titan Company was trading around Rs. 940/- per share. Since June, the stock as well as the market has gone into correction and in October, 2018 Titan Company is trading at Rs. 800/-per share.

In my experience, I have seen many people prefer to buy the Reliance Communication, because it has corrected to its 52-week low and its price is much cheaper in comparison to the Titan Company irrespective of its debt ratio, profit and loss account, balance sheet etc.

You need to make the Fundamental analysis of stock, Technical analysis of stock, Qualitative analysis of stock and focus why the price has corrected to its 52-week low.

Have you any question regarding the 6 myths about stock market? please leave a comment so that we have a discussion and if you enjoyed this post then share with your loved ones.

Leave a comment