BrokersMinutes

Investors who are new to the world of finance might be under the impression that they have to put their money in the stock market. While you can make some strong gains when you buy and sell stocks, you have other choices, such as oil trading.

However, like any other business stock trading is also risky. You also can lose big on the stock market if you do not play well. Conversely, there are several myths as well that one needs to burst. We have listed many of the myths you should know about the stock market. This way, you can make an informed decision about where to put your money.

1. Investing in stocks is akin to playing blackjack. Because of this myth, people stay away from the stock market. But this is not true. Investors make a calculated risk when they buy stocks. They consider the companies and their profit and loss statements carefully before deciding which ones to pick. When you buy stocks, you are part owner of the company. You do not only have claim on the company’s assets but also on a small proportion of the profits the company generates. At times, investors make the mistake of taking shares as merely a trading vehicle, neglecting the fact that owning a company’s stock means having an ownership in the company. Prices go up or down because stockholders are trying to determine the profits a company will make. Gambling, on the other hand, represents no ownership in anything.

2. The stock market is for rich people. In fact, average workers can and do invest in the stock market. Many companies offer their employees stocks as part of their benefits packages. 401 K plans usually invest in stock markets. If you own IRAs or mutual funds, you are investing in the stock market. You also could just go online to buy individual stocks that aren’t part of the fund. People made a lot of profit this way because they knew when to buy a bunch of stocks. For example, many people bought stocks during the Great Depression and the 2008 Crash.

3. Fallen angels will increase. This myth is not a good one for beginning investors. If you choose to buy a stock that is trading at a 52-week low, you are likely to get hurt. Your investment isn’t likely to gain profits and will cost you plenty. That’s not to say that you can’t get deals during a stock market crash. You have to be wise about which ones you choose. You have to look for the ones that have consistently performed well before the crash. Those are the ones that are likely to rise from the ashes again. Price is only one indicator of whether the stock is a good buy. For example, say company X performed well last year but the price dropped to $10 a share while company Y was steady and increased from $5 to $10. The better buy is the second company. The reason is that the smaller company is on an upswing and probably is showing something that will improve the stock price. It could have issued a press release about a new product or recently hit a milestone in sales. Or it could have cut its expenses, which improved its revenue stream and outlook.

4. Stocks that go up are ready to fall. Not everything that goes up comes down. You don’t have to worry about gravity on the stock market. Consider Berkshire Hathaway’s stock. More than two decades ago, the price rose from $7,455 to $17,250 per share in a short period. If you thought the stock would nosedive and sold your shares, you would have missed the rise to $170,000 per share over the years. Despite this example, you must know that some stocks will decline. The price of the stock reflects how well the company is run. It the company is well-run, it could keep increasing.

5. You need to know a little. This is bad policy on whatever you are doing. If you only know a little about a subject, you are doomed to have problems. This is especially true with the stock market. You have to know exactly what you are doing with your money. You have to study the companies, how the price of the stocks have performed, which stocks are the best to choose, etc. The more you know, the more profits you will make. You also need to know the other products available to you that could pose a good investment.


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