Probably you have come across many stories, investing myths and results you have seen on social media or have heard from people you know, about how investors achieve outperforming results in the financial markets.
We all believe excellent results can be achieved because we have great figures like Warren Buffet and other investors who have created incredible amounts of wealth.
That's why in this article I will try to debunk common misconceptions about the world of Investing
1. There is no risk in an investment opportunity
No investment products are entirely without risk. Every particular financial asset has its associated risk. The takeaway here is to learn how to differentiate between low-risk ones and high-risk ones. One of the best ways to learn is by taking a professional course that teaches you the best ways to identify the risk for each asset.
2. I do not have enough money to invest
This is a typical myth among many people. Many believe that is necessary to have a big account to generate big returns in investing. Any amount of money is enough to start investing, even $50. The key here is to add regularly to your investing account through regular deposits so your account can benefit from compounding your wealth. Even regular small contributions can compound to a big sum over time.
3. You can always time the market
Investor always brag about buying securities when they are at their lowest but this is not always the case. You can never predict 100% if the price of a stock will increase or decrease in the short term, so getting this right all the time is almost impossible. What you can do with the proper knowledge and expertise is kind of reduce the risk and wait for the moment that aligns the best with your goals.
Technical analysis will help to time the markets but always remember that you cannot always enter at the lowest price due to that markets are unpredictable.
4. Diversification is not for my level of investing
Diversification is just another investing strategy where you hold different assets to mitigate the risk. By holding diverse asset classes, across different sectors and geographies, investors reduce unnecessary risk and balance natural fluctuations in the market avoiding losses. This is related to the old saying do not put all your eggs in the same basket.
5. I always pick winning stocks
Most investors try to overestimate the ability to buy stocks and what they end up doing is over-trading and incurring higher transaction costs. Investing is entirely a patience game and the less you do the better. When you overestimate these abilities you are trading, instead of investing because you are buying and selling and not letting the asset play in your favour. I always encourage value investing, which is the strategy of buying stock and investments based on their intrinsic value. So the idea buy them at a discount price and hold them for the long run. Simply Investing course provides all these strategies to maximise returns and avoid this misconception.
6. Past performance is a good predictor of future performance
This is another famous misconception within investing where past performance is not the only factor that contributes to the future of the stock. As I said previously stock movements are quite random in the short term and price is determined by many external factors. You should consider past performance in your analysis but also consider other types of data like market sentiment, company fundamentals, and economic factors that are happening in the world.
7. I always sell when the price has dropped a lot
It is a mistake to focus too much on the short term. Sometimes investors will sell a stock immediately if they see the price plummeting. This is acting on impulsive decisions and they do not focus on the big picture. Stock prices move up and down every day and they can be trending up or down for a long time. So, it is important that you prepare to be patient and hold your assets for a long time. If watching the stock prices make you anxious, a tip is to commit to checking your account at the end of every month or only check your portfolio every quarter.
8. FOMO (Fear of missing out)
FOMO is a day-to-day thing for investors and traders. When the price of a stock is really high and the trend is up, many will jump straight away without analysing other possible risks that are around that particular stock. Always do your analysis that combines different pieces of information. Instead of jumping right away, try to answer some questions first to let you know if that is a good investment for you. My Free Investing Checklist will help you do exactly that.
9. My research tells one story
People often seek out information that confirms their existing beliefs or biases, while ignoring evidence that contradicts them. This is not research is validating your point of view by intentionally only looking for information that supports it. It is so important to stay unbiased and try to be very objective in the information you gather. I always recommend going with the company fundamentals and looking at things like revenue, cash flows, income, debt etc. Because these things are objective and make your decisions more reliable.
10. Investing fees are not part of gains and losses.
Many of the time, investors overstimate the impact of fees, and if you keep on buying and selling these fees will add up to your P/L. You must consider these fees in your transactions and plan accordingly. Some brokers will take the investing fee out if you trade more than a certain number of trades within a month, that is understandable because for Brokers the more you trade the more commission they earn. So stick to an average of transactions per month or quarter but keep on adding funds to your account.
Check my tools sections to help you invest in the financial markets.
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