Stock market: 7 misconceptions

Stock market misconceptions

     If you have decided to invest in the share market, you may come across with a lot of comments that would try to stop you from doing so. The prevailing misconceptions about stock market is the main reason for this. We, today, would discuss 7 prominent such misconceptions.

1. Investment in stock market is a kind of gambling.

     Many people stay away from share market because they think that it is a kind of gambling. Winner, in gambling, is paid money by the one who got defeated. There is no matter of any values.  But in share market, it is about the investment in the business of  a company.  The value of investment is increasing in accordance with the growth of the company. It will reflect in the share price as well.  Thus, one could earn unimaginable amount of profit in long term.  One more, when we deposit in shares, we are taking part to strengthen the economy of the country also.

2. Stock market is only for rich people.

     According to many people, their reason for staying away from the stock market is, their lack of money.  Most people misunderstood that we must carry lakhs of rupees in order to invest in shares.  First, we want to think that we could be a rich man by investing in shares, instead of thinking that we could invest in shares after being rich.  If divert our thought this way, we can make big changes in our life.  You can start investing in share market if you can set aside Rs 500 every month.  Start depositing 20% of the salary each month after limiting your expenses by the remaining 80%.  But the decision in this regard must be taken now itself.

3. No time at all

     The prevailing public concept is that the share trader must be vigilant from morning to evening about the movement of share prices.  But, ironically, share traders comprise people from all walks of life.  People with ‘no time’ may plan mid-term as well as long-term investments.  It can be 6 months, 1 year, or 10 years as per the convenience.  For example, share price of Federal bank in 2003 was only Rs 30.  At that time a doctor bought 5000 shares spending 1.5 lakhs.  Now the stock is trading at Rs 465 per share. ie.. 1.5 lakhs rupees capital turned 23 lakhs in the span of 10 years.  You are doing the job for making money, but, when you invest in a company, the money is working for you and the capital is going up in multiples.  You can make higher profit from share market than that from a fixed deposit. 

4. High educational qualification required for share dealings.

     You don’t want to be a finance expert in order to invest in shares. The public concept in this regard is totally wrong.  Mainly 3 qualities are needed to start the investment. 

(1) Common sense. 

(2) Desire to earn knowledge. 

(3) Willing to spend a few time in this way. 

First you want to be ready to study about the share market.  Reading books, attending seminars, using internet … etc are useful ways.  In brief, ‘studying is the foundation of achievement.’ 

5. You will lose money when indexes going down

     This misunderstanding creates more anxiety about the share market in common people.  Declining share prices and steep plunging of indexes are common in share market though, it is not only a place of falling down.  The motion of share prices is always like a wave.  Definitely there are both upward and downward movements.  Using this wavy motion discreetly is the best way to succeed in share trading. We have to buy when the share prices falling down, and to sell when it going up.  For example, see the share price movement of V-Guard.  Its IPO (@Rs 82) was in 2008 March.  But, soon after the IPO, the share price had gone down by 50%.  But it was only a temporary phenomenon.  Now this share is trading for Rs 437. 

6. Broker takes over everything.

     The concept that broker takes over everything is absolutely wrong.  Never forget that, it is your hard earned money, being invested in the share market.  There are various kind of trading like derivative trading, speculative trading… etc.  These all must be done with clear knowledge.  We must be aware about the chances of loss in the market.  As far as the beginners are concerned, they are recommended to invest in long term and that method is safe for them.  And expect the annual profit as limited as 10-15%.

7. It won’t suit me.

     One should make investments looking forward about the future.  Best profitable investments are necessary nowadays as the day to day expenses are booming.  Most of the traditional investment plans only bring the profit of as small as below 10%.  Here it comes the relevance of share market. Looking the statistics of last 30 year’s, the investments in share market has achieved the annual growth of 19%.  Yet, if we didn’t notice the possibility of success in stock market, it would be painfully frustrating!