Last time in the “Ten myths of stock market investing – Part 1” I discussed the top three myths in stock market investing and cited that these reasons are probably why people don’t invest in the stock market. I have successfully debunked those myths, so we continue today with the next 3 myths.
4.) The stock market is manipulated
This is my brother’s favorite excuse. I don’t blame him; the truth is that despite strict and tight regulations; there are still stock manipulations that had happened in history and in stock markets all over the world.
However take note that if you study the stock manipulations that has happened in history, you will discover that these only refers to individual stocks and not the entire market. Also most of these stocks are stocks of company that seem to pop out of nowhere, had little or no history of being profitable and yet people bought them based on rumors.
So even if there are stock manipulations that have happened this does not mean that the entire stock market is manipulated. The manipulations happened to several individual stocks and stock markets all over the world have taken action to stop the manipulation. They have also installed measures to somehow prevent future manipulations from happening. Besides, news that a country’s stock market is manipulated is not good for the stock market of that country. So each country’s stock exchange will do their best to prevent manipulations.
5.) Only people who have insider’s information will succeed in the stock market
Just like stock market manipulations, trading in the stock market with insider’s information is a reality. It happened before and it will happen again. However this has only been done by a few individuals and a few stocks. Stock exchanges all over the world have very strict rules on insider trading. In highly industrialize nations; stock trading using insider’s information has been successfully prosecuted.
It is true that some people who invest or trade in stocks got rich through obtaining illegally acquired insider’s information, but these are only a handful of people and some of them have been successfully prosecuted. There are hundreds if not thousands of individuals that has been successful in their stock market investing endeavor even without insider’s information.
Publicly listed companies usually provide enough information and disclosures to the public any corporate activities that the stock exchange thinks will affect stock prices, so ideally there is no need for insider’s information.
Warren Buffett, the world’s greatest stoc market investor has this to say about insider information “”With enough inside information and a million dollars, you can go broke in a year.” If Warren Buffett does not need inside information to get rich in stock market investing, neither do you.
6.) Stock market investing is merely a calculated gamble
To gamble is to take a risky venture or to make a risky act for possible monetary gain. Unlike in sports and other games wherein the outcome of the game is mostly controlled by the person playing the game, in gambling, most of the outcome of the game is left to pure chance or luck. There are two elements of gambling, risk and luck or sheer chance.
If you examine the above definition closely it is far from what stock market investing really is. I will talk more about risk on the next point.
Unlike gambling, your performance in the stock market is not left to pure chance or luck. You have control over what stocks to buy and at what price you are suppose to buy it. You study the data if a company will continue to be profitable base on its management and financial data. If you approach the stock market from a business perspective you are engaging in a business and being in business is never gambling.
The only people gambling in the stock market are the pure stock market traders. They don’t care about the intrinsic value of the business or the management of the business. All they care about is the price. If the price goes up and keeps on going up, then they keep on waging bets on the company leaving it up to chance or sheer luck that sometime somehow the prices will keep on going up so that they will make a killing. What they are doing is very risky indeed. They are relying on the sentiments of other individual investors which are very unpredictable. For these people stocks are cards, chips, dice or pieces of the game that you play around with. The stock market for them is the world’s largest casino.
Stay tuned for the last part of the post “Ten myths of stock market investing – Part 3”
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