Stock Market Myths

In these uncertain times, first-timers are likely to be concerned about investing in stock markets. Common misconceptions about investing can lead to fear. These myths are false, and you can overcome your fear of investing to kick-start your investment journey. We'll be dispelling some myths regarding investing in the stock exchange.

Myth 1

Stock market trading = Gambling

People generally feel that trading is a gamble.

Myth Busted

Investing is more science-based. You need to research the technicalities and fundamentals of the securities and current market trends. This will also help you determine the growth prospects of the company. This means that investing in stocks requires extensive research. It is not like gambling.

Myth 2

Past performance ensures future returns

Investors consider past performance and ratings when making investment decisions. Investors assume that if a stock has done well in the past it will do so again in the future.

Myth Busted

Investing decisions should be based on the future and not only historical trends. Many factors influence the company's growth prospects. Interest rate, GDP, exchange rate, etc. These are the main macroeconomic variables that impact the stock's performance. You should also consider the company's microeconomic factors when investing. These include quarterly earnings, competition level, cost of production and new product launches.

Myth 3

If stock falls, it will rise eventually.

People just cannot resist a bargain so they will often buy stocks at their lowest price. They believe that a falling stock will eventually rise. They also avoid stocks at their highest, as they believe they will decline in the near future.

Myth Busted

Investors need to investigate the reasons why a stock drops. Are the reasons for a stock's fall solely due to market sentiment that could reverse? Or is it due to a significant event that could have a negative impact on the company's financials? A stock that has experienced a strong rally does not necessarily mean it will decline further. The stock price's rise or fall should not affect the reason for investing. You should always base your buy/sell decision on an accurate analysis of the stock's intrinsic value and align it with your financial goals.

Myth 4

To make money, you need to invest a lot.

People are often swayed by the belief that the stock market is only for the wealthy. They have seen the wealthy get richer through investing.

Myth Busted

Investors don't have to invest large sums of money in order to make money. However, they do need to be disciplined as well as thorough. Investors can become millionaires by investing small amounts over a longer period of time. This may seem surprising, but you can start investing as low as Rs. 100.

Myth 5

It is important to get in and out at the right moment

Investors are often misunderstood to believe that they should time the market to make good returns. They believe that if they withdraw or invest in the market at the right time based on news or indications, they can earn good returns and avoid any loss.

Myth Busted

The market is unpredictable and no one can predict when the market will peak or fall. Instead of trying to time the market, you can look at the larger picture before you invest. Before you invest, research any news you hear or see. Don't trust any news without research. You could lose your investment capital. Investment options can be based on the information you have and whether you are looking for long-term or short-term returns.

Myth 6

To be successful, you need to trade frequently.

Potential investors are also discouraged from investing because they believe they will need to trade frequently to make good returns.

Myth Busted

Quality trades are more profitable than quantity trades. It is possible to trade many times without doing enough research and not get the desired returns. You might make good returns if you do your research thoroughly and trade qualityly.

Myth 7

Safe and profitable trading stock with low P/E ratios

The price-to earnings ratio (P/E), helps determine if a stock is undervalued or overvalued. This ratio is used by investors to calculate the stock's relative value. The P/E ratio is a standard indicator that a better deal will be found if the price is lower than the earnings.

Myth Busted

The cheapest stock may not be the best option. This could mean that you are choosing a company with poor growth prospects or a bad current condition. The stock may be trading at a discount for a reason. You should not base your investment decision solely on the P/E ratio. Consider the growth prospects, the product launch, debt structure, peer comparisons, management, and other factors. If you spot a stock that has a low PE ratio, it is important to research its reasons and make an informed investment.

A common myth is that only experienced investors can invest in stock markets. Angel One is a user-friendly platform that allows beginners to start investing. Start investing today by downloading the app here.

These myths have been busted. Don't let them stop you investing in the future and reaping all its benefits.