Most people who are new to the idea of investing in the stock market approach it with one or more misconceptions about what it is or isn’t. On the other hand, plenty of people avoid it, and thus lose out on its potential for wealth building, because of the same kinds of myths and misconceptions. So, before you do anything, or avoid doing something that could benefit you, let’s clear those up.
It’s No Different Than Gambling
On the face of it, this is an understandable misconception, born out of the lack of basic understanding of what the stock market is.
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.
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.
With some study, you can learn to recognize sound stock choices that will bring solid returns (You can study cards and odds, too; but at the gambling table, you’ll always be dependent on luck).
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, one can start as little as PHP1000. Anyone with an internet connection, an online trading account, and a little bit of money can get started.
The internet has also made widely available a lot of financial information and analyses (e.g., Yahoo! Finance) that were only available to stockbrokers before. Now, anyone can do their own stock research and monitoring.
It Requires Extensive Financial Knowledge and Experience
A middle-aged person looks at a successful investor like Warren Buffett and his financial figures like it’s too late now—they’ll never be able to acquire the necessary knowledge to amass that kind of wealth.
Fact is, you don’t need to know everything or have experienced at all before starting out. Stock markets have changed and developed since its inception in 12th century France.
Keep in mind that you can always start from where you are.
It’s a Good Way to Make Quick Money
If you’re a capitalist investing in foreign currencies or buying and selling millions of shares of a particular stock at a time, a small rise in value can pay considerable sums quickly. But anyone who’s new to stock market investing is never going to be playing at that level.
Anyone who has ever made any money investing in the stock market has had to observe and learn how the market moves before they start investing actual money. One of the best ways to do this is by paper trading.
Even short-term traders (e.g., day traders), those who can give an impression of being able to make quick money, had to study the market for some time before they began.
A Hot Stock Tip Means “Go”
A tip that you get from someone you trust may nonetheless be based on bad information. Even if they trust who they heard it from, what is the actual source of the information?
Considering the abundance and accessibility of data via the internet, there is no reason to neglect a little research in matters that involve your money. So, before you go and make a stock purchase, check out the tips online.
A good place to start is Yahoo! Finance. When you look up a company on the site, you will find “Headlines,” which is a chronological listing of links to stock market related news about the company. See if these corroborate or contradict the tip.
Stock Market Forecasts Are Reliable
Like weather forecasts, market forecasts are not 100% reliable. When you begin to learn about the stock market, you will see how events in a particular industry or the world, in general, can affect market activity and the values of stocks or certain sectors thereof.
So, in the same way that you would look out the window before deciding if you need an umbrella, you need to keep an eye on the market and what’s happening in the world or a particular industry before making any investment decisions.
Final Thought
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. Still, others avoid it entirely for one or another reason.
Before you decide to invest real money do your homework or consult with a professional.
