The stock market can be a confusing place to be. Even
though professionals have the bigger advantage from the novices due to
experience, it doesn’t mean that they’re invincible and can no longer make
mistakes, especially when it comes to believing myths that are thrown around in
the stock market.
Here are 2 of the biggest myths that every investor has or
had heard in the stock market. This will hopefully prevent you from believing
them if you were lucky enough to avoid them before:
A Fallen Stock
will go back up eventually
Amateur investors being attracted to its appeal will be
entering a dangerous territory, thinking that a stock trading near a 52-week
low is a good buy can be seriously damaging to an investor.
Most people believe that a stock which has been previously
on a higher stock value but has since dropped to a low level is better than a
lesser known that has recently rose to a higher value. This way of thinking is
considered a cardinal sin when it comes to investing.
Remember that price is just one part of the whole investing
equation. The goal of investing is to buy good companies at a reasonable price.
Basing your decision to buy solely on the height that the market price has fallen
is not a sound investing strategy. This practice is different from value
investing which has you buying high-quality companies which the market has
undervalued.
Investing is like Gambling
Investing is the opposite of gambling. The only way for your
investment to turn into gambling is for you to take unnecessary and uneducated
risks and place your money on a stock even though you clearly know that the stock
is not in a good condition anymore.
Investors take a long time and stay patient when it comes to
assessing the profit that will be left over for shareholders. This is mainly
the reason why stock prices fluctuate. The outlooks for business conditions
continuously changes, and so does the company’s future earnings.
There are a lot of variables that should be taken into consideration
during the assessment of the value of a company. In the short term price
movement may appear random but will be proven otherwise in the long run when the
company can prove itself to be worth the present value of the profits it will
make.
Gambling on the other hand merely takes money form a loser
and gives it to a winner. There is no value created. But in investing, the overall
wealth of an economy is increased. Productivity is increased as companies
continue to compete, developing products that are bound to make our lives
easier.
FSMSmart is here to
provide you with the latest news updates about market trends. Never miss out on
news regarding forex, commodities, consumer, financial, and technology here in
FSMSmart!
