The Stock market offers opportunities that can help you get to your financial goals faster when used properly. However, despite all the good things the market has to offer, there are still some myths and biases that prevent people from investing. In this post, I am going to bust the 8 most common misconceptions about the Stock market.
Whether you are a student who earns a little paycheck and wants to make the best use of it or in your 30’s planning to buy a house, the market can help you reach your financial goals faster, thanks to the magic of compounding and active trading.
Lets dive in:
1. Investing in the stock market is like gambling
This is the most terrible weapon critics bring to the table. They paint a picture that investing in the stock market is the same as gambling. They might be right, based on their personal opinions and experiences, that is. But, to say such assumptions are founded on facts, and are logical is far from the truth.
Do you think investment banks and major companies, such as Apple, Microsoft, Berkshire Hathaway, and Airbus would place their companies in a system based on gambling? Just take a moment to think that through for yourself.
Let’s take a look at the root of this misconception. A study conducted by Bank’s rate Money Pulse survey in the USA in 2017 found that people have this misconception due to:
a. Failed financial Education: There is no effective financial education in the school system, and most people don’t make an effort to learn the practical steps needed to overcome these biases, according to the research.
b. Mistrust of the stock market: The study said people tend to hear amplified bad news from the media. The previous market crash, and the recession that followed it didn’t help either to dissipate those biases.
2. You need a huge amount of money to start investing
To date, a lot of people still connect investing in the stock market to rich people. Come on, times have changed. We are no longer living in the old ages where broker fees were extremely expensive for the HAVE NOTs.
Thanks to the liberalization of the stock market, and the impact of fintech (Financial technologies), nowadays you can find discount brokers where you can start investing with way less money than before.
Many of them will be happy to offer new customers the opportunity to open a brokerage account for free.
You heard that right, for FREE. With $100 or $200 as a first deposit, you are set to start making money moves. Hey there, the new wolf of Wall street.
The next time someone says you need to be rich to start investing in the market, you should slap them back with facts.
3. The Stock Market is really complicated to understand
The stock market is not a skyrocket science. First of all, let me clarify something and make you feel assured: You don’t need to be a mathematics geek to shine in the stock market. I am not good at mathematics, and neither are most analysts.
Yet, I invest in the stock market and so far, I have done just fine. The secret is to learn from successful investors, the real ones, not from scammers that’ll promise you a profit of 1k per day.
Now that I have your attention on finding successful investors, you might be wondering where you can find these successful investors, right? Well, I got you. Some of these successful investors took it upon themselves to pour all their knowledge, well a good amount of it, into a place available to everyone, books.
Down below are a few I have found to be very helpful.
a. The Intelligent Investor by Benjamin Graham
b. The Bogleheads’ Guide to Investing by Taylor Larimore
Even though you don’t need to be a mathematics geek to invest in the stock market, there are some common traits you’ll find in most successful traders and investors: They are patient, disciplined, they have a critical eye and can handle basic mathematics.
Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it. Peter Lynch
Now, lets have some fun. Down below is a little test for you. If you can reply to these two questions in less than one minute, then mathematics will not be your downfall as an investor.
Important: Don’t use a calculator.
4. You need to be a highly intelligent person to be profitable in the stock market.
Actually, being another Albert Einstein or any of your favorite geniuses is not a requirement to start investing in the stock market. The most important traits that will help you to be profitable are:
– Discipline: you should learn to control your emotions and stick to your plan.
– A critical eye: Don’t buy or sell stocks based on your emotions. Do so based on your analyses.
You should be able to check a stock’s pattern and see if its values is increasing or decreasing. You can also compare the 3 previous years of this stock to see whether it has been yielding good results year after year, or whether it has been struggling, before deciding to invest.
– The basics of mathematics: The basics of mathematics will help you see how much for example, buying and holding a stock will cost you, and also how much profit you stand to gain in the whole process.
5. You can make millions of dollars overnight in the stock market
Let me bust this myth straight: YOU CANNOT make it. Only big boys make such money moves. In the financial language, big boys are people who make moves involving billions of dollars in the stock market. People such as, Warren Buffet, Jeff Bezos, or financial institutions.
Unless you are one of them, you will probably not make it rain short term. In the long-term though, with persistence, you’ll have a bigger chance to make it big.
6. You should let a so-called guru choose the best investment for you
No, you should not. You are the one best suited to choose the best opportunity for your future. Listen, no one cares more about your money than yourself. Let me tell you a little story:
In the 1970s, there was a significant growth in America’s middle-class household revenue. That extra money encouraged the middle class to start investing in the stock market. Sadly, most of them didn’t make it big.
Why? you might ask. They made a big rookie mistake. They relied solely on the opinions of Financial advisors or other specialists.
Most of them took, and applied any advice given to them without processing it themselves to weed out the bad ones.
As a result, they didn’t see major growth in their portfolios. Due to the lack of results, most of them stopped investing instead of learning the basics of stock market investing, in other to make improvements.
Remember to process financial advice first, before you take any action.
7. Most day traders or investors make profit
This is one of the worst I constantly hear. Most so-called gurus try to make it seem as if simply investing in the market means you’ll make huge profits by default.
Almost all brokers show the percentage of people losing money on their platforms. For example: 80% of traders lose their money on PLUS500.
Do a little research, and you’ll find out for yourself. Without knowledge, you will most likely become another victim, raising that percentage even higher.
8. You don’t need to understand how the stock market works. A simple strategy will help you make money.
False! You do need to constantly educate yourself in order to succeed in the long run. How many times when scrolling through your timeline have you seen a dude promising he’ll give his new students a strategy that will allow them to outperform the stock market.
Understand that most of these guys don’t make money from trading. They make money from people whose knowledge of the stock market is flawed.
There is no strategy under the sun that’ll save you from losing money, if you don’t know what you are doing. It’s like fighting against air, you can’t win.
Next time someone comes up to you presenting their magical tool that’ll help you make fast and easy money, RUN.