2 of the Biggest Myths in the Stock Market

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.

stock market chart seen in led screen

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.

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