Previously we learned about “Ten good reasons why I love investing in the stock market” By now, you must be very excited to start investing in the stock market. However before we go into the “how” of proper stock market investing, let’s take a look at the misconceptions or myths of stock market investing in order that you might truly have the right investing perspective.
People have a lot of misconceptions about stock market investing. Most of the time because of these reasons they end up not investing in the stock market at all thereby missing a great opportunity to take advantage of probably the greatest money machine man has ever invented. Because of these reasons also, people miss some great market opportunities wherein prices are so cheap. These opportunities could only occur once every 3 to 5 years. Also, because of these misconceptions, people end up getting burned and end up vowing to themselves never to get involved in stock market investing.
There are lots of myths and misconception on stock market investing, and I am only presenting ten of them since I feel that these are the most common. These are sorted according to popularity.
1.) You need lots of money in stock market investing
This is probably the number one reason, why people don’t invest in the stock market. They think that stock market investing requires lots of money. This is really not true. With the advent of the internet and online stock market brokerage, stock market investing has become cheap in terms of transaction cost and the minimum amount required for investment. When I first started out, I remember I only shelled out P 5,000.00 to start engaging in stock market investing. P 3,000 was for the opening of the savings account which is considered as my settlement account, while the P 2,000 was for my trade account. Now it gets even better, my online broker has lowered the maintaining fee for my stock market trading account to only P 500.00 !
To start buying stocks, of course the bigger the amount you have, the better it will be since if you have a bigger amount in you trade account, you can buy more and take advantage of opportunities especially if the prices are low. The amount required for investing in stocks will vary depending on the price. Also there is a required minimum of shares that you can purchase. This is known as the “board lot.” To know the minimum amount required to purchase a certain stock, simply multiply the board lot by the current price per share. As to what is the board lot of each a stock, you can see this information at the stock information page of each stock at the Philippine Stock Exchange website.
So, what is the estimate minimum amount that is required to purchase stocks? Well believe it or not you can start purchasing even if you have only P 5,000.00! To give you an example, the board lot for Jollibee foods corporation (JFC) is 100. The current market price is P 50.00. So 100 X 50 = P 5,000.00.
As you can see, you do not need lots of money to start investing in stocks.
2.) Stock market investing is complicated
Not really, but I have to admit, it requires some work, for what endeavor that promises gain doesn’t require work?
People get the impression that stock market investing is complicated because they see the pundits reading charts (Can you see the shoulders in the candles? or something like that), discussing esoteric theories and principles (Elliot wave, Fibonacci expansion) and speaking in lingo (terms like resistance, consolidation etc.) that ordinary people cannot understand.
There’s good news for you! You don’t need to learn all that junk!
Now don’t get me wrong. Some high sounding words, principles and theories in stock market investing have been used in the fields of finance, economics the sciences and mathematics. These were developed by brilliant people who are respected in their own fields. Some of these theories and principles are good for investing and some of them aren’t. The stock market is just too volatile and too sentiment driven to be guided by solid scientific principles. As Isaac Newton once lamented when he lost a fortune in the South Sea Bubble, “I can predict the motion of heavenly bodies, but not the madness of crowds.”
What I want to emphasize is that you don’t need all of that to start investing in the stock market. What you need to learn are simply business principles and have some down to earth common sense. You will need to learn to read a financial statement though. You don’t need to go through the entire gamut of accounting principles and theories. What you need is a basic understanding about financial statements, some business sense and some down to earth common sense.
3.) Stock market investing will make you an overnight millionaire
The best way to approach the stock market is to approach it from a business perspective. After all buying a stock is buying a business, since a stock represents a portion of a business.
If you take this view, then you understand what I mean that stock market investing does not make you an overnight millionaire. You can’t expect to start a business today and sell it for a million pesos tomorrow or next week. Businesses needs time to grow in value. Similarly to get constant solid returns in the stock market, you need to wait for it to grow in value.
The stock market may be the greatest money making machine invented by man, but it’s a machine that takes time to work. If you want to be an overnight millionaire than the stock market is not for you. Better pack your bags and head to Vegas, where you will be the single lucky overnight millionaire that is if you will not end up loosing your shirt with thousands of other people who are also still recovering from their hangover.
Watch out for the continuation of part 2 of the “Ten myths of stock market investing.”
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