2 Dangerous Stock Market Beliefs that You Should Avoid

Stock market sayings can be popular because they’re easy to remember. But, some stock market phrases can be downright dangerous to commit to memory. Peter Lynch, a well-known fund manager, has a few to share.

As a brief background, Lynch was the manager of the U.S. based Fidelity Magellan Fund from 1977 to 1990. In those 13 years, he clocked annual returns of 29%. In his bestselling investing book One Up on Wall Street, Lynch shared two silly (and dangerous) things people say about stock prices.

“If it’s gone down this much already, it can’t go much lower”

The history of classifieds-advertising firm Global Yellow Pages Ltd (SGX: AWS) may be instructive in this case. Shares of the company closed at a split-adjusted price of $17.80 at the start of 2005. By the end of 2008, its shares were trading at just $2.00 each, which represents a fall of almost 90% in four years.

With a gut wrenching collapse like that, one might be prone to think that “it’s down so much that it can’t go much lower.”

But the fall continued. At the market close yesterday, shares of Global Yellow Pages were trading at S$0.19 each – that’s a 90% decline from where it was at the end of 2008. This came on the back of weaker business results.

“If it’s gone this high already, how can it possibly go higher”

The other extreme of the first phrase can be dangerous as well.

Take Thai Beverage Public Company Limited (SGX: Y92) for instance. From 2007 to 2013, the alcoholic beverages manufacturer saw its shares double. With a 100% rise, one might think that it has gone “high enough and couldn’t possibly go higher.”

But go higher it did.

At the market close yesterday, Thai Beverage’s shares had climbed another 81% from where it was at the end of 2013. It’s for a good reason too – Thai Beverage has reported stronger sales and profits.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.