Six myths about stock marketing investing

Some popular myths and why you must bust them along your investment journey.

Stock markets myths don’t come about in a vacuum. They are an outcome of a wrong idea that gets perpetuated and accepted by investors. However, such myths can be dangerous in that they make investors allocate funds wrongly. Here are some popular myths and why you must bust them along your investment journey.

I am too old to be investing in the stock market

There is really no ideal age to invest in the stock markets. Of course, as you go ahead, your risk appetite does come down. However, that does not mean you stay away from equities in totality. Remember, Warren Buffett started investing in his twenties, but made more than 80% of his wealth after the age of 65. The older you are, the wiser you are the more equipped you are to invest in equities. There is nothing like a retirement age when it comes to investing in equities.

This is a 100 year old company, so I am assured of big returns

A company with pedigree is surely a much safer company. However, they are not the best generators of returns. For instance, Hindustan Unilever, hardly gave any returns between 1997 and 2010. Similarly, in the last 4-5 years, pharma companies have not given great returns despite the post COVID bounce. Now we are talking about companies with a pedigree of over 30 years and who have been top class performers at one time. The moral of the story is that just because the company gave good returns in the past, does not mean it will do so in the future too.

Make a list of what 10 big investors are buying and just buy them

As much as it sounds exciting, this is a myth that you can make money by following the big investors. These could be individual investors or institutional investors, don’t just copy what they are doing. There are several reasons. Many of these investors may be buying just to diversify their portfolio holdings. Also remember that these investors have much higher risk appetite, which you may not share. Also, these might be arbitrage positions so it can be misleading.

Investing is too risky; almost like gambling

Investing is risky, but it is vastly different from gambling. In gambling, you don’t invest in assets, but just speculate. In gambling you have absolutely no idea of the odds and work on probabilities. In the short run the stock markets may be a slotting machine but in the lot run it is a weighing machine. 

Effective investing means buying low and selling high

That is theoretical and never happens in reality; not even to the best of investors. It is impossible to consistently predict highs and lows and trade accordingly. In the stock markets time matters more than timing.  If you buy a good portfolio of stocks and stay invested, you have a much better chance of making profits in the longer run.

Any stock that falls, eventually bounces back

That is a myth. Ask that to investors in Kingfisher and Satyam. Very often, buying falling companies is like catching a falling knife. Some quality stocks have bounced back after a fall, but that does not apply to every penny stock in the market.