Thinking of investing in stock marketing? There’s a lot of information about investing floating around. There are also a lot of bad opinions, misconceptions, and flat-out lies.
Knowing the difference between myth and reality is your ticket to hitting your investing goals. Here are 5 of the biggest myths about investing:
Myth 1 – Investing in stocks means gambling
Reality- When you exchange your money for chips at the casino and play $20 on a hand of poker, your bet buys you nothing of value. If you win, you get back more money but if you lose, your money is gone. No further potential for gain. When you purchase a share of a company’s common stock, you receive something of value. Your money buys you a small percentage of that company. You then have a claim; however small, on that company’s assets. Everyone hopes the stock they purchase will increase in value; but even if it decreases, it still retains some value. There is always a potential there. Hence, it is not gambling!
Myth 2- Growth Beats Value
Reality- There is a very simple reason why value works better than growth: Expectations tend to be higher for growth stocks and higher expectations lead to more opportunity for disappointment. When a company is doing well, investors expect it to continue doing well. As strong rates of revenue and earnings growth are sustained, more investors buy the stock and the valuation rises. Eventually, the company reports sales and earnings that don’t meet expectations and the stock price plunges. It doesn’t matter how strong the actual rate of growth is; if the rate of growth is slower than what investors were expecting, the stock’s price will fall.
Myth 3- It’s Only for Wealthy People
That may have been the case once, particularly with regard to high broker fees. But due to the advent of online trading, the price per transaction is far lower today and more people are beginning to invest.
Myth 4- Past Performance Indicates Future Returns
Reality- It’s tempting to buy an investment because it has done well in the past. And it’s generally true that if a stock has generated a solid return over a very long period of time, it’s a good bet moving forward. But there’s absolutely nothing to prevent an investment from sinking even after years of great returns. And it certainly doesn’t make sense to invest in something based on the performance of the previous few months.
Myth 5- Investing in penny stocks can make you rich overnight
The main reason for this perception is because penny stocks are traded at a very cheap price. Investing in these stocks would not need much of capital and there are some cases that the stocks grew over 100% within a short period of time. But penny stocks are highly risky; chances of losses are even higher.
For many, the stock market represents a possibility of quick wealth, especially since the establishment of online trading services in the mid-1990s. Others know it as a game of patience for long-term gains.
Before you decide to invest real money do your homework or consult with a professional.