Stock trading has been around for hundreds of year. The earliest stock exchanges, which bought and sold grain, quickly expanded to other commodities. These early deals were carried out in the house of a man called Van der Bourse, which is why stock markets are sometimes called bourses today.
Even though stock markets have been around for years (or maybe it’s because they have been around for so long) investors have perpetuated a collection of false notions about what goes on there. Unfortunately, some of these myths have become so ingrained that many consider them to be true. But believing these untruths could damage your wealth!
Timing Is Important
Some traders believe they can predict the markets’ every turn, but the truth is no one can. So when is the best time to buy shares? The short answer is always, if you plan to invest for the long haul. Over the long-term, the stock market has returned around 10% on average. If you have never invested in shares before, a good place to start could be through an index tracker such as the SPDR Straits Times Index ETF (SGX: ES3). It does what it says on the tin – the Exchange Traded Fund tracks the performance of the Straits Times Index (SGX: ^STI). So, by investing regularly, you should smooth out the inevitable fluctuations in the market.
You have to take profits to make money
You don’t always have to sell your shares to make money. One of the best examples of holding onto a good share for the long term is provided by Warren Buffett’s 9% stake in Coca-Cola. In 1988 he bought shares in the fizzy-drinks maker at a split-adjusted price of $3.75. At the time, the shares had a dividend yield of 4%. Since then, Coca-Cola has maintained its 50-year unbroken record of annual dividend increases. The payout today is $1.88 and the shares are worth around $40 a pop. So as far as Buffett’s investment is concerned his yield on the cost of his original investment is 50%.
The stock market is a casino for the rich
Many people are put off investing in shares because they think that stock markets are massive gambling dens where rich people gather to plays games of chance using shares as currency. Firstly, the stock market is not a casino, and secondly shares are not just for the wealthy.
A stock market is a place where people can buy a stake in a company through the purchase of shares. Each share entitles the owner to a portion of a company’s profits. So, as the company flourishes, shareholders will benefit too. Of course, investors are trying to ascertain how a business is likely to perform in the future, which can cause share prices to fluctuate in the short-term. But over the long-term, a company’s financial performance will be the main driver of its share price.
What’s more you don’t have to be rich to buy shares. The Internet has opened up the market for brokers so you can now buy and sell shares at a modest cost. As an added bonus many brokers provide useful data and research tools that were once available to just a privileged few.
So you don’t need to be a financial genius or be fabulously rich to invest in the stock market. But you could miss out on increasing your wealth if you let these untruths send you down the wrong path.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.