Top 3 Myth Of Investing

Credit: Ethan Lofton

 There are no fixed rules to finding success in investing. However, there tends to be many myths surrounding how to invest in the stock market. Here are my top three, and why they are so far from the truth.

Great companies will always make great investment

Companies with world-class reputations might still not be enough to win over the volatility of Mr. Market. Companies such as CapitaLand Limited (SGX: C31), Sembcorp Marine Ltd (SGX: S51) and Wilmar International Limited (SGX: F34) are all considered leaders in their industries. Yet, all of them have suffered steep decline in their share price during their listing period. We have to understand that a share price is dependent on the expectation of the market. And the higher the expectation, the larger the disappointment, regardless of how good the company is.

Lower-priced stocks are “cheaper”

Many assumed that a low-priced stock has a higher chance for higher return due to its low starting base. That is why many investors prefer to speculate on penny stocks.  However, in the long run, the fundamental of a company will be reflected in its share price, regardless of how much it is trading at. Golden Agri-Resources Ltd (SGX: E5H) has been trading around S$1.00 per share in 2008. Yet as business fundamental decline, so too did its share price, which fell to less than S$0.40 per share recently.

On the other hand, Jardine Matheson Holdings Limited (SGX: J36) traded around US$30.00 per share back in 2008. Nevertheless, as its business improved, so did its share price, which has increased to around US53.26 per share, close to a 100% gain.

I can be Warren Buffett one day

Sorry to burst your bubble, but most likely, none of us will be like Warren Buffett in our lifetime. Many have decided to focus on becoming an investor, after knowing about the story of Warren Buffett, on how he became one of the richest man in the world simply by investing. Yet, investing spectacularly for decades is harder than it looks. That is why after closed to two hundred years of the formation of stock markets; there is still just ONE Warren Buffett.

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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 writer Stanley Lim owns Wilmar International Ltd.