Stock Market : Myths & Reality
Myth : Magic tips can create wealth overnight.
Reality : No such magic tips exist. Investment in stocks where an uptrend is in formation and profit-booking at an appropriate level creates wealth over some time. Faith in the underlying trend makes the difference.
Myth : Trend has no role in Stock Markets.
Reality : Trend is the soul of a stock or Index. When the stocks form an uptrend or downtrend, they race up or fall freely.
Myth : Although the price is rising continuously over some time, I will buy the stock at a lower level as the stock may see sudden unexpected falls. Trends have no role in price rise.
Reality : Stocks usually register higher and higher prices when moving in uptrends. Unless there is news related to the industry or a particular stock, usually prices don't fall drastically. There are supports and resistances where fresh buying and profit booking occur. Since greed always plays spoilsport, profits may be partially booked at resistance levels before the uptrend halts and reverses.
Myth : When markets fall, it may fall heavily with no chance of quick recovery.
Reality : Stocks are sold for peanuts when the markets witness a freefall, and the fact is usually ignored that fallen stocks recover also at supports and form an uptrend depending on their strong financials.
Myth : Stocks falling in a downtrend are cheap now and buying them will give huge profits in near future.
Reality : This concept is wrong as some downtrends usually take a few months and sometimes years also to reverse. Hence, locking capital in falling stocks is not a wise decision. Hence, it is always advisable to invest only in stocks with strong fundamentals, not in penny stocks. Remember, apples are always costlier than oranges.
Myth: Financial discipline is not required to make profits in stock markets.
Reality: As rightly said in Gujarati, "Bhav Bhagwan Che", Price is God. 'Current Price' reflects everything i.e., the impact of the information and also the balance of power between bulls and bears. To understand the price, investors need to follow market-related information and also do good research on their favourite stocks before investing.