Many are the opportunities to increase your wealth in the stock market but then again, there are as many risks involved. Let’s try to gain a better understanding of the stock market by being wise to the following stock market myths:

The stock market is a quick get-rich scheme

Nothing is more farther from the truth, unless the concerned market is a singularly inefficient one. The stock market is a volatile and unpredictable sphere. The more the market becomes efficient, the less chances for short-term gains. Speculation can only end in success if one has sufficient experience and expertise and keeps a close eye on market developments.

nvesting is a gamble

Such an impression is enough to turn you off the stock market but this is how investing in stocks is different from trying your hand at roulette: A share of common stocks is equivalent to partial ownership of a company, giving the shareholder a claim on assets and also a small percentage of the profits generated by that company. In other words, a significant stock holder can influence the decision-making process of the company, so the stocks are about power as well as money.

The stock market only favors the brokers and the rich

Stock brokers may claim to know every nook and cranny and every turn in the stock market but recent surveys indicate that this is just a marketing strategy. Not only have brokers failed to deliver in their predictions but the internet is expanding in such a way that the latest stock market information is now accessible to anyone. Any individual can use data and research tools which were previously limited to brokerages.

What goes up must come down

The stock market does not follow scientific laws. So don’t get nervous thinking that your good luck is about to change, unless there are indications in that direction.

When stocks hit a low, it can only go up

It’s surprising how many investors are tempted by this notion. A person who buys stock trading at a near 52 week low thinking that it’s an important sign is an amateur investor.

A little knowledge will help to invest in stocks

If you are going to invest, then you have to make sure you gain something. The stock market is not a kindred spirit. Even the experienced investors strike out sometimes. Spend some time researching the market trends and understanding the various levers. In the stock market knowing a little may be equal to knowing nothing at all, in terms of results.

You must assume high risks to earn well

No, no and no. Do not buy your stocks all at once or put more than 10 % of your money on one stock. Limit your stocks to 3 in any industry. Anything over the top will leave you with stock market nightmares

The value of a stock can be estimated by the price to earnings ratio

The PE ratios vary from one company or industry to another so it is not a standard for comparison. Even within an industry, the PE ratios do not reveal the value of stocks.

Best to buy falling stocks and sell rising stocks

Contrary to common belief, a falling stock is not cheap and a rising stock is not very expensive. One can’t accurately predict how low the stock will fall, so when do you buy it? What if it falls lower after you buy it? It is the same with rising stocks. The stocks may continue the climb after you have made the sale.

Share of profits should be evaluated in absolute terms

This seemingly no-brainer is at the same time, a misleading myth. Don’t let absolute values pull wool over your eyes. As a rule of thumb, evaluate dividends as a percentage of the share price.