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The Myths of Investing in the Stocks

The Myths of Investing in the Stocks

A lot of people have the wrong notion about investing in stocks. Therefore, the majority do not invest in the invest in stocks missing the chance of a lifetime to cash in on the greatest money-making machine man has ever invented. By the same token, they also miss the rare market opportunities when prices drop rock-bottom low which happen only once in 3 to 5 years.

Tales and legends about investing in stocks abound but I am only relating some of them which I believe are the most widespread. These are presented here in the order of the most popular first and the least popular, last.

1.) To invest in the stock market, you need a truckload of money.

Easily, this is the first and foremost turn-off for people wanting to invest in the stock market. They think that in stock market investing, one has to have a huge stockpile of cash. This is simply not true. Due to the availability of the internet, the cost of stock market brokerage transaction and other transactions have been greatly reduced. Even the minimum amount required for investment has gone down. When I started investing in stocks, I remember paying only P5,000.00. P3,000.00 went to the initial deposit for opening a savings settlement account, while P2,000.00 went to my trade account. You know how much my online broker asks to maintain in my stock market trading account? Only P500.00!

When buying stocks, the bigger the fund you have in your trade account, the better for you since you can buy more and grab the opportunity when prices go down. How much you need to invest in stocks depends on the price and on the “board lot” which is the minimum number of shares one can purchase. Multiply the board lot by the selling price per share and you get the minimum amount required to purchase a certain stock. You can refer to the stock information page of the Philippine Stock Exchange website to get the board lot size information of each stock.

How much then, is the minimum amount of money required to purchase stocks? This one is for Ripley’s – you can purchase stocks for as low as P5,000.00 only! The board lot for Jollibee Foods Corporation (JFC) stocks is 100 shares. At the current market price of P50.00 per share, 100 shares times P50.00 per share is P5,000.00.

There, you see? Investing in stocks doesn’t really need a lot of cash.

2.) Investing in stock market is complicated business.

Not hardly, but you have to do some work. What money-making endeavor promises gain without effort?

People mistakenly think that investing in stocks is a complicated business because they see pictures of businessmen or investment wizards examining charts and graphs, debating investment theories and principles (Elliot wave, Fibonacci expansion) using terms (resistance, consolidation, etc.) in language only they could understand.

But hey, don’t worry because nobody needs to learn all that stuff when investing.

Don’t get me wrong, though. There are some principles and theories in stock market investing that have been found useful in finance, economics, sciences and mathematics. These have been established by highly intellectual individuals whose names are widely recognized in their fields of discipline. Some of these theories have been applied and worked well in investing. Some just don’t simply because the stock market is too unstable and temperamental to be accurately predicted by cold scientific principles. As Sir Isaac Newton who lost a fortune in the South Sea Bubble stock scam, regretfully expressed, “I can predict the motion of heavenly bodies, but not the madness of crowds.”

You will be glad to know that you don’t need all of these to start investing in the stock market. You just need to learn simple fundamental business principles and some plain common sense. You must be able to read and understand a financial statement though but you don’t need to go through the entire course of accounting principles and theories. If you have just basic understanding of financial statements and have business sense plus good old plain common sense, you are good to go.

3.) Investing in stocks will make a millionaire out of you overnight.

Look at the stock market from a business standpoint. After all, when you buy stocks you are buying a business because stocks represent a part of the business.

With that in mind, you will better understand when I say that stock market investing does not make overnight millionaires. Nobody has yet started a business one day and then sold it for a million bucks the next day or the following week. Like a seed, business needs time to grow. Before you get solid returns from the stock market, you need to give it time to grow in value.

The stock market may very well be the greatest money making machine ever made by man but it is not the fastest. It’s a machine and machines take time to produce! If you are reckoning to be an overnight millionaire via the stock market, you are looking at the wrong place. Go to Vegas where you can be a lucky instant millionaire overnight, that is, if they don’t get to you first and you lose even your shirt along with thousands of others aiming to be millionaires, still nursing their hangover.