PostHeaderIcon Ten myths of stock market investing – Part 1

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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4 Responses to “Ten myths of stock market investing – Part 1”

  • Jonha says:

    Those misconceptions are often the most common stumbling blocks. I have been reading and listening from talks lately about how taking risks, getting into a dip then eventually becoming a linchpin and I feel the need to really give heed to them and start doing something that will help increase my profits, my learning and my experience.

  • zigfred says:

    JOnha: That’s great ! Continue learning. See and you shall find 🙂

  • Zigfred,

    Sinasabi ko na nga bat nabasa ko na minsan ang blog na ito, eto nanama’t balik ako. haha

    So last week ko pa na setup ang account ko with Citiseconline. I was very excited kaso, may work ako sa umaga na kanina ko lang talaga naisingit ang bumili. I bought JFC at SMPH. Medyo ok naman ang JFC (as always) at medyo tagilid sa SMPH pero ok lang, sabi nga ni Warren Buffet,patience is a virtue.

    Ngayon here’s the million-dollar question, yung dividends daw ba ang tawag nun, how do they send it to me? As you see, sobrang newbie palang ako kaya panay ang hanap ko ng mga tips. Salamat nga pala kasi sobrang detailed ng mga posts mo not to mention very entertaining. 🙂

  • zigfred says:

    Jonha: Yep, it’s one of my life’s desire to start an online value investing institute as there is none online as of now. So that is why I write about investing from the very start. I start with the very basic until I build to the more complex but not hard to learn investing topics. I try to do my best to write about investing in a way that can be understood by the ordinary person.

    Yes, agree ako diyan sa patience is a virtue. Warren Buffett is one of my idols in investing. When my stock portfolio seems to be going nowhere, I take comfort in his words when he said “”The stock market is designed to transfer money from the active to the patient.”

    With regards to your question on dividends, if you trade online, it is automatically credit to your account. Usually it is credited to your account 3 days (Sometimes it takes more than that) from payment date. You have to be a stock holder a day before the ex-date in order that you might be entitled to dividends.

    Pag may question ka, just tell me kasi pag wala akong ma isip na topic, at least I will know what topics to write on. Anyway, I try to do my best to follow a certain structure sa mga post ko. I start with the basics to the more complex. The next post I will be writing is probably an introduction to the school of thoughts on investing and then the details about value investing, reading financial statements etc.

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D’ Intelligent investor is one of the first few updated value investing blogs in Asia and probably the only updated value investing blog in the Philippines where you can learn stock market investing through intelligent investing that makes business sense. The stock market investing strategies are very different from what most stock market players advocate. The strategies featured here are mainly value investing principles more specifically inclined with what are perceived to be Warren Buffett’s style of investing. Other value investing strategies by great value investors such as Benjamin Graham, Peter Lynch, John Boggle among others are also featured.