When the stock market takes a plunge, it makes front page fodder on all the news outlets. Then the analysts emerge from their underground bunkers to break down the tragedy that will most certainly occur. Their words of fear and despair will echo in the minds of those who are considering investing in the stock market. Fortunately, the words of doom are just that, mere words. That is, a stumble suffered in the stock market is just that, a fall that will certainly see the losses overcome in due time. When the stock market suffers a problem, common myths about the market will no doubt rise. Here are a few of those myths.
People often shy away from the stock market because they believe it is just like gambling. To better understand why investing in stocks is not at all like gambling, it is important to understand what it means to buy stocks. When you own a share of stock it gives you part ownership of that company. That stock you own entitles you to a claim on assets as well as a fraction of the profits the company generates. You are wrong if you view owning stocks as merely a trading vehicle when it really represents your ownership of a company.
The outlook for business conditions is always changing as is the future earnings of a company. This is the reason for fluctuation in the stock market. Assessing a company is not an easy task as there are so many variables involved. Many times, short-term price fluctuations may seem random, but over the long term, a company’s worth is true to value.
On the other hand, gambling is a zero-sum game that merely takes the money of the loser and places it in the hands of the winner.
Another myth is that many believe the stock market is an exclusive club utilized by rich people. The fact is that every study that has touched upon this subject has proven it false. In fact, the advent of the Internet has made the stock market more accessible to the common investor more than ever before.
Many people believe that what goes up must come down. However, physics does not apply when it comes to the stock market. There are plenty of examples of company stock making drastic gains in a short period of time and maintaining those lofty levels for years. Now, this is not to say that stocks never undergo a correction, but there is no reason why a company run by excellent managers can’t see their stock continue to rise.
Knowing just a little bit about something is far better than knowing nothing at all. That is, investors who really know what they are doing are the ones who will have success in the long run. But don’t follow the crowd like a lemming, find a Northbrook financial advisor who will steer you in the right direction. You invest, we manage, it is a recipe that works.