As technology becomes more and more prevalent, more and more information emerges on the market. While this is certainly a good thing in the long run, this increasing availability of information can also lead to a lot of misinformation. The resulting inaccuracies can lead, in a lot of cases, to an abundance of false facts that are often perceived as incontrovertible truth, which quite frankly, is ridiculous. I’ve listed some of the most common below:
Investing in the stock market is more or less gambling.
Wrong. First off, a stock is representative of ownership in a company. It is not a chip on a poker table in Atlantic City. This means that the investor is actually entitled to a claim on the assets of a company as well as some of the profits that same company generates. The reason your share doesn’t remain at the same price you initially purchased it for, is because your share’s value is supposed to be representative of its respective company’s value; and that’s not easy to assess. That’s the reason stocks vary in value, because the perceived value of companies change. Additionally, if we’re just looking at the bottom line, the average return on the stock market is a formidable seven percent. Essentially, you’re expected to earn money. With gambling, you’re expected to lose money.
Strong companies breed strong stocks.
While in theory, this makes a lot of sense, it is not necessarily true. Often times, a company will experience rapid success and receive a high stock valuation when in fact the company itself generates next to no profitability. This is because stocks include perceived current value and perceived future earnings, and the numbers articulated are not necessarily concretized assessments. Of course, a highly successful company can also have an accurate, high valuation. In a nutshell, make sure you do your research and you check the financial details of a company before purchasing shares and claiming your stake. Take a look at this article for a better look at specific companies that have high valuations despite losing millions of dollars simultaneously.
The stock market is composed of wealthy aristocrats.
While in the past this perception was more prevalent, things have since changed. With the internet’s pervasive reach, the public is now more than ever able to understand the stock market. The same tools once reserved for brokerages and market advisers are now just as available to anyone with a computer. In fact, Nasdaq actually offers a comprehensive overview of said tools on its site. Not to mention, most of the prognosticators that exist today are infamous for inaccuracy anyway.
There are many myths surrounding the stock market. If there’s one thing you can take away from this, it’s that you should do your research. Know what you’re getting yourself into and make an educated decision based off the information available to you. The rest will take care of itself.