We all know the proverb “Knowledge is power”. However, being misinformed is actually more harmful than knowing nothing at all. The stock market is a prime example.
Many of my friends who have just started working, unfortunately, fall into the category of knowing the half-truths about stock investing, which can lead to dangerous outcomes.
With that in mind, I would like to point out three stock market myths that we all need to be aware of to be more knowledgeable.
Myth 1: My broker always has my interest at heart
How simple the world would be if we were all truthful and honest with each other. The reality is very different. Brokers may seem like they want the best for you but commissions and sales targets also drive them.
I am not saying that all brokers are dishonest, but the fact of the matter is that there are conflicts of interest in their line of business, making it difficult for them to do their jobs while keeping their clients’ interest at heart.
As investors, we should always make sure we do our due diligence and do not follow advice blindly.
Myth 2: The best stocks to invest in are small obscure stocks
When I first started investing, I avoided big companies like a plaque. I believed that they had already garnered too much attention and because of that, were steeply overpriced. Instead, I looked for small obscure companies.
However, as I found out the hard way, small companies often pose a much greater risk and do not necessarily have better returns. Big companies, on the other hand, are more stable and many of them still have a large runway for growth (think e-commerce and social media).
As such, we should not limit ourselves to just one type of investment but instead, make sure we diversify our portfolio to include both big and small companies.
Myth 3: Investing is easy
How many times have we heard this phrase from someone else: “If I had invested in this company, I would be many times richer?” Yes, it may seem easy, but that is because we have hindsight bias. The hard truth is that investing is not that easy.
Investors who are successful need to have patience, a good grasp of business concepts and an understanding of how many industries work.
Before jumping into stocks, it is important we learn the basics of fundamental analysis and learn how to find good long-term investments through a thorough analysis of the company’s business.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.