15 Biggest Myths About Money and Investing

There are lot of rumours and myths in the market when it comes to investing in share market or managing your money. These myths are told to us so many times that we get accustomed to it as if it is true.

Some of these myths are very dangerous and it’s better to know them and be secure so that you do not repeat them next time.

15 myths about money and investing in share market-

1. It’s different this time

This is the very common statement which everyone starts saying whenever market corrects from its high. Probably this statement was very prevalent before 2008 market crash. Isn’t it?

2. It must be right since it’s on CNBC

People have a very big misconception that CNBC or any other business channel is there to help you in making money. Rather it’s there to sell advertisement and make money for their own company.

3. I won’t sell until I recover my capital

If you really agree to this view; it means that your ego is taking the lead. It’s better to stay calm and take decision after proper analysis.

4. This time it’s turnaround story, I am going to invest all my capital

Please be very cautious when you hear this term ‘turnaround’ since stockbrokers or similar group have a tendency to dump the stock by narrating some turnaround story or what not. So it’s better to be very cautious and conduct proper research before investing in share market.

5. This stock is down 90%, how much it can fall more

This is one of the biggest of all mistakes which most people does. Say XYZ company which was priced at 200 few months back, is currently quoting at Rs 10. Suppose you bought 100 share at RS 10 and since the stock has already corrected 90% so you may think that the only risk is Rs 10 per share. But say in a month’s time, it came down to Rs 2. In absolute terms, it’s just a loss of Rs 8 but in relative sense, you have already lost 80 % of your capital. So you need to analyze accordingly. It’s better to analyze company’s fundamental than the percentage fall of the stock.

6. You have to be a genius to make money in the stock market

Most people say that you need to make a lot of analysis and calculations in order to analyze a stock, but it has been found that big and highly qualified fund managers have failed to even beat the market while on the other hand many common investors have outperformed the market simply by applying common sense and general observation.

7. I am too young to invest

Some people don’t invest just because they think that they are too young to invest. But by the time they start investing, it’s already very late.

The legendary investor Warren Buffet who started investing in share market at the age of 11, once said that he started very late.

8. I am too old to invest

Some people on the other hand believe that they are too old to invest. But there’s a logic which says that investment in equity should be 100 – your age. So even if you are of 50 years, your investment in equity should still be 50% as per this rule.

9. I hate stocks…I am ok with the safety of bonds

Most investors in India are risk averse and they are comfortable investing in bonds over stocks. But in the long term, net-net you are in a loss.

Let’s take an example to understand this-

Say bond yields 8-9 % and inflation stands at 10%, so you can very well understand that inflation is eating away all your gains. So you have to earn more than 10%  in order to beat inflation.

With inflation running at 10%, and bond returns at 8-9%, you know where you’ll end up in the long term, don’t you?

10. Investing the way fund managers do is the smartest thing to do for small investors

People often believe that complicated things are always best, but simple things are found to be more effective in both real life and stock market.

The small investors have a tendency to follow big investors or fund managers  in the market, but this is not correct since it differs in various aspect like time horizon (fund managers often invest for very long term say 5-10-15 years), risk appetite and so on. So the best thing is to do your own homework, and apply common sense before investing in share market.

11. IPO = Quick money

Some people are there who always invest in IPO since they believe that they can make really quick money in an IPO. But research says that people have burnt hands in 90% of the IPO’s. Moreover, it’s very difficult to conduct research on a company which doesn’t have a historical data, hence it’s a bad idea. Think of the IPO of Reliance Power and DLF, you’ll get the answer.

12. This stock is a multibagger. Let’s borrow money to buy more of it

This is an another term which is popularly used by the stock brokers and fund houses to dump their stocks and to fool people. So be very careful, when you come across this term and rather carry a detailed analysis in case of these stocks.

13. Stock market is like a casino

You might have got this lesson from your parents or your relatives that try to stay away from stock market since it’s more of a gamble and casino. This may be that they have seen people loosing money in trading or in IPO.

There’s a famous saying by father of value investing, Benjamin Graham —

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

The equity market is a best place to invest for long term and if you still think market is a casino, you will be a looser in the long run.

14. Large cap stocks= Safe stocks

Not all large cap stocks are safe stocks. These stocks have already given a descent return in the past and might not deliver the return you are expecting. You have to be specific even in buying large cap stocks.

15. 99% of investors don’t read annual reports? So why should I?

Reading annual report is one way to find good companies to invest. Unless you do your homework properly, you can’t think of making money. So it’s better to put down your ego, stop following others and take a wise decision.

Bottomline

Never underestimate yourself since what exactly need to be a successful investor is just your own independent mindset. Always keep in mind, that you yourself is capable to manage your money. It’s high time you start believing this and act on it.

If you know the right investing strategies you will always make money. Learn equity analysis and investing in E-NCCMP course

Happy investing!