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Last Updated on February 7, 2021
Like every other way people choose to make money, the topic of investing in the stock market is tense with myths, misinformation, and all sorts of falsehoods. In fact, in an ordinary day, you probably are more likely to hear incorrect statements about this topic more than any other. The thing to remember is that you can find out about how to invest in the stock market from reliable sources by doing a bit of online research. What will you learn when you dig deep and start busting a few myths on your own? Here’s a short list.
Falsehood: You Can Dive Right in Without Learning the Ropes
The truth is practice, especially via paper trading, is a necessity for success. Paper traders are those who use simulators to practice with fake money before they move onto using the real thing. The massive advantage of this method is that you get a feel for how the markets work, how prices move, and how to place different kinds of trades. Often, new investors are able to overcome their nerves and jitters about investing by working with a simulator for several weeks before putting their own cash on the line.
Myth: Everybody Loses their Shirts
You always hear about extremes. For example, the next time you’re with a group of people discussing the market, make note of how many tales you hear about people who either got wealthy by picking one or two hot companies, or about investors who lost their life savings by putting everything on a stock that took a nosedive. The truth is in between, and not nearly as exciting as the dramatic stories. Most people who take the time to learn how to trade, are patient, and don’t take large risks, can earn a decent return in the long-run.
Misinformation: Everyone Becomes Rich if they Know a Few Secrets
The real version is that some do become wealthy through diligent investing, but rarely does it happen quickly or happen because they knew a secret that no one else was privy to. Unlike stories you’ll see in films and read in books of fiction, people who earn income from buying and selling securities plug away at it for months and years at a time, slowly adding to their portfolio. It’s about hard work, patience, and being willing to learn. It’s not about secrets.
Myth: Stick with One Stock and Hold it for Decades
The reality is that the grand majority of investors who do well are diversified. Seldom do you encounter a person who either knows how to choose a specific security that is headed upward or decides to hold nothing in their portfolio but that one company’s shares. Diversification is the most common way people protect themselves from price volatility.
Bad Advice: Only Invest in Blue Chips
The truth is that shares of many different kinds of companies and at different price ranges are appropriate for investing, whether long-term or short-term. Many folks include blue chip stocks in their holdings but seldom restrict themselves to only those kinds of shares. Of course, there’s nothing wrong with playing it safe and sticking with blue chips, but the technique is no guarantee of success.