Is stock trading gambling ?
As we observe that a lot of people consider stock market as mythical as a fairy tale. This situation keeps a lot of population at bay or away. As many investors question “whether investing in stocks is worth all the hassle”. We think you have to be smart to understand the real problem and keep a realistic view of the stock market. There are a lot of myths that often arise about the stock market. Here we are breaking some myths to set your mindset before we discuss the stock market in depth.
Myth 1. Investing in Stocks Is Gambling :
Truth. Investing is pure science, once you do your analysis
This reason makes a lot of potential investors to shy away from the stock market.To understand how investing is different from gambling, we need to understand what it means to buy stocks.
A share of the company is ownership in that company. It entitles the shareholder to a claim on assets as well as a fraction of the profits that the company generates.
Too often, investors mistake shares as simply a trading vehicle rather than the ownership of a company.
In the stock market, investors are constantly trying to predict the profit that will be left over for shareholders. This is the reason for fluctuation in the market. Also, business conditions are always changing and so are the future earnings of a company.
As assessing the value of a company isn’t an easy practice. So the short-term price movements appear to be random; however, over the long term, a company value is supposed to be worth the of the present value+ profits.In the short term, a company can survive on the expectations of future earnings, but no company can fool investors forever—eventually, a company’s stock price will reflect the true value of a firm.
On the contrary, Gambling is a zero-sum game. It merely exchanges money from a loser to a winner. No value is ever created in the entire process.
By investing, we increase the overall wealth of the economy. As companies compete, it results in increased productivity and development of products that can make your investment better. And in process make your lives better.
So, Don’t confuse investing and creating wealth with gambling’s zero-sum game as both are entirely different.
Myth 2. The Stock Market Is an Exclusive Club :
Truth. No, you don’t have to be an expert to invest.
Whenever I speak to someone who is not investing in stocks or tempted to invest but don’t, they often reply that they find stock market very complicated to understand. Even the people who invest regularly don’t seem to understand clear picture of the market.
On the other side of the table, Many market advisers claim to be able to recognize every turn of the market. Various studies done on this topic has proven these claims to be false. And are the recipe for your economic meltdown, if you blindly believe them with your money, as their claims are far too inaccurate.
I totally agree stock market has many complexities, but at its core, it is about buying and selling securities or shares. And you don’t have to be an expert to do that. The internet has made it easy to get access to the same information that brokers and other experts use.
All you need to do is:
1. Dedicate some time to learn
2. Gather proper information from various authenticated sources
3. Reach on social media to people who can guide you well
4. If required, you can hire professional services,
5. You can also subscribe to relevant sites to get information and believe me there are many.
Myth 3. Fallen stocks will go back up, Eventually:
Truth. Not every stock fall is an opportunity. So hunt for reasons why the stock has fallen, don’t hunt for price alone.
In my opinion, Nothing is more destructive to amateur investors than thinking that a stock trading near a 52 weekly or yearly low is a good buy.“Not Every stock Defies Gravity in Stock Market”.
If a stock fell from a high of Rs 600 to a low of Rs 150, many investors will buy it on the assumption that it can rise again.
You should always check the reason for fall, mostly stocks fall for some reason, which might be degrading company’s business.
Price is one among many parameters of the investing equation. The goal in investing is to buy good companies at a reasonable price. Buying stocks solely because their market price has fallen will get you nowhere.
Make sure you don’t confuse this practice with the concept of value investing, which is to buy high-quality companies stock, when they are undervalued by the market.
Myth 4. What Goes up Must Come Down:
Truth. If company and management are working hard to keep the growth going. Sky is no limit.
It is inverse of the previous myth. There is a belief that if a stock has gone up it would eventually fall.
But, It is possible for the stock of a well-run company to continue to increase in stock price. So when investing in stocks, it’s important for you to do research on the company and its fundamentals and don’t rely solely on company’s name and stock price, alone.
Myth 5. A Little Knowledge Is no more injurious Than None:
Truth. Always understand what you are investing into.
I learned from my experience in a hard way that never enters the market unprepared, you will make mistakes and pay the price.
Knowing something is generally better than knowing nothing, but it is crucial in the stock market that an investor has a clear understanding of what he or she is doing. Investors who do their homework are the ones who succeed.Period.
If you don’t have time to fully understand what to do with your money, certainly seek help from a trusted adviser.
Myth 6.Too obvious is not obviously right:
Truth. Don’t follow the crowd. Do the due diligence.
It means if something is too obvious to the people with little knowledge about a stock can certainly lead you to the wrong track.
It means if your knowledge is limited you would be following the crowd, a situation that is bad for your financial health. So invest in knowledge, and we promise to help you with the investment journey.
Myth 7.Market forecasts are reliable:
Truth. In the global economy, every event in the world affects the stock market. As a result, the market fluctuates in response to those events.
The market is constantly shifting and is affected by the global marketplace, as a result of globalization. This makes it hard to predict which way the market would turn.
So when you are investing, it is important to do your homework not only on the stock you are investing but also on the global economy.
Myth 8.Trading complicates your taxes:
Truth. Your brokerage firm will help you with essentials.
It’s true that you will have to pay taxes on the money you make from investments, but the brokerage firm you trade through will always provide you with the necessary tax forms and notifications to ease the task.
There is no doubt that investing in stocks means some hassle, but its worth the hard work and effort you put. Also, we wish you to be an informed investor. We would end with a metaphorical note “Consider partially informed investor as a partially informed surgeon, who works on your financial health. So mistakes could be injurious”.
Let us know any other myth you feel exist . We will try to include it too. And let us know what do you think about these myths. OR Were you victim of any of the myths.
All blog posts of wealthblog.in are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.
Experience of 8 years in stock investment. I learned everything by making a lot of mistakes and losing a good amount of money, I am here to make sure you don’t lose on either: Hope or Money.