Stock Market Myths

2017-08-18 13:46:20


Many people are afraid of investing in stocks just because they do not have knowledge about it, some even consider it gambling and do not want to enter and some consider it to be the game of rich and they are the only ones who drive these markets.


There are some myths about stock market to clear. The first myth is that stock markets are driven by rich people and brokers and they are the only ones who earn. This is because earlier it used to happen that only brokers were the ones who used to have every data with them, but with the advent of Internet even ordinary men can have information about companies with them and hence they can speculate markets up to some extent. Since trading takes place online in most of the stock exchanges you have transaction details of trading at the end of the day in your inbox or your cell phone or PDA, which is very helpful for intra-day traders. The individual long-term investors have advantage over institutional investors as later are under extreme pressure to get high returns every quarter while the individual investors have the ability to look beyond the temporary downturns in favor of long-term outlook.


The second myth is that investing in stocks is just like gambling. This is because the prices of stocks go up and down and people bid on them and earn profit or bear the loss without trading anything tangible. But the thing they forget to consider is that a share represents the ownership of a company, it entitles the holder to a claim on assets as well as a fraction of the profits that a company generates. Gambling is a zero-sum game that takes money from the loser and gives it to the winner - no value is ever created. By investing we increase the overall wealth of the economy. As companies compete, they increase productivity and develop products that make our lives better. So, there is difference between investing and creating wealth in zero-sum game.


The third myth is that having a little knowledge of stock markets can do the task. There is an old Indian saying that either you should have full knowledge or it's better not to have knowledge at all because half knowledge leads to disaster only. If you are having some knowledge about stocks and shares and planning to enter, then you should take either full knowledge about the markets or hire some advisors. One thing to notice is that the cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.


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张力平,IT行业资深分析师。Zhang Liping, aka Sevencastles,a senior analyst in IT industry and the owner of Seven Castles,'a Shanghai blog featuring news and views of great interest'.