Unfortunately sometimes the stock market gets a bad rap. Some people that are just getting started in the stock market and investing hear the rumors from jaded traders. They may hear the bad news coming from the television about how volatile the market is and how no one is possibly making money in this type of market, no matter what type of market it is. There are several stock market myths that unfortunately have begun to become so real in investors’ minds that they are scared away from investing. Here are a few of those myths.
Myth #1: What Goes Up Must Come Down and Vice Versa
Often, new investors get pulled into thinking that the stock market is a zero sum game and a price from yesterday or 2 years ago will be reached again. Take the recent market events for example. Certain stocks reached to double or triple their normal trading price and have not gotten back up there since. Some people are buying into the market thinking that these stocks will hit those prices again but there is no guarantee that they will. I have a friend that bought into a mobile phone company expecting their fortunes to recover and the price to go back up. The price has been steadily declining since. Fortunately he made the decision to sell out with an adequate stop loss. There’s no reason to think that stocks that used to be high will get back to their previous levels. There is also no reason to think that any stock has a reason to drop. I have another friend that repeatedly shorts a popular technology company and gets burned everytime. The stock does not have to drop. The price may correct from time to time but the price may not drop significantly.
Myth #2: Only Big Players Make Money
It is also believed that only hedge funds and big players like Bershire Hathaway can generate consistent wins because the have the power to control the stock price. Even if the big players all agree to buy a stock, the overall market which is made of many players, can dilute the power of the big players. It is possible to generate a return in the market if you take the time to do the research like the big players. That is the only difference between you and them.
Myth #3: Everyone Loses and No One Can Beat the Market
This is a huge myth. If no one can beat the market, how did Warren Buffett turn his paper route money into millions of dollars? How did George Soros become one of the most well known traders? And there are countless others that make a living from investing in the stock market that you would never know about. It is possible to beat the market, but first you have to believe that you can. Making smart choices and taking the time to learn everything you can will help you earn positive returns.
Myth #4: It’s Impossible to Time the Market
This is a popular myth that unfortunately is widely believed. Timing the market involves waiting for the opportune moment to buy or sell. I think the main reason that this myth continues to gain believers is because many people don’t understand the basics of timing the market. It doesn’t have to be an extreme level of trading where you only buy at the bottom and sell at the top. That is not possible. Picking tops and bottoms is not something even an algorithmic trader can do. But it is possible to time a trade. If you’ve been following a stock for a while and you know that you will continue to buy into the stock, you can make it a point to buy on a day when the overall market is down. This is a way to time the market. When you are ready to sell, you may want to sell when the market has rallyed. This is also considered timing the market.
What do you think? Have you fallen prey to some of these market myths?
This post was written by Latisha.