Some myths about stock market 

(Source: Investopedia)


 

Source of this section is Investopedia literature 

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What are Stocks/Shares? 

Why do I buy Stocks?

Where do I buy Stocks?

How do I claim a Stock?

Why do companies issue shares?

What are types of stocks?

How are the stock prices decided?

What are BULLS and BEARS?

Why do stock prices change?

Who are the share brokers?

Risks of Shares

 Virtual Stock Market Game

Some myths: Fear on investing in stock markets

Real Stock Exchanges in India

Sensex: A brief Intro

 

1. Investing in stocks is like gambling

No, it’s not. Owning a stock means you are investing in some company and creating some value. The money will be used for the progress of not only the company but the whole country through industrial and economic progress and prosperity. But, in gambling, money changes from one hand to the other merely and no value is ever created.

The reason, you see the fluctuations in share market and are afraid to invest, are because apart from demand and supply and the bulls and the bears, there are:

  1. The business conditions constantly change, the range of future profits change along with the business conditions. Hence, prices fluctuate.

  2. Short-term random fluctuations are always there (Random Walk Theory). It is difficult to predict or explain.

  3. Sudden shock in the market may cause stock prices to go down or up! Always we see if there’s a government change, stock markets fluctuate. You must have noticed the stock market going down when Congress decided to elect Ms. Sonia Gandhi as the Prime Minister of India. I won’t go in details of the issue. But, it happens.

  4. In the long run, however, a company is worth only it’s present value (Net present value or NPV). I’ll discuss this in details in the finance module which will be up soon.

So, invest in stock market to create value for the nation.

2. Stocks which go up will come down.

No, it’s not physics. Share prices always go up and up and up, if the company is run by excellent managers who always create value for the customers and shareholders. Check google’s share. It’s going up for a long long time and never came down till date.

3. Investing in losing big company shares is better than investing in gaining small company shares.

I don’t think so! Most of the companies made a very humble beginning and because investors had faith in them, they made it big! Don’t go by the names. Trust your intuitions.

You need to know about the present and future prospects of a company before investing on them. Don’t invest blindly! It’s your hard earned money, invest judiciously after knowing all the information. Think for a minute before you invest!