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5 Myths About the Stock Market

Monday, 06 Dec 2010 10:22 AM

It is important to understand the stock market if you are an investor.
 At times, it can be difficult to differentiate between myths about the stock market and the facts.
Here are the top five myths about the stock market:

facts myths stock market
1. October is considered one of the worst months for the stock market. While there may have been some bad Octobers, there have been many occasions when the stock market has done well too. Another month-related common stock market myth talks about May being the month when stocks should be sold. An age-old saying goes like this: “Sell in May, Go Away.” However, many times, the stock market has improved in May and in subsequent months.
2. Another common stock market myth says that you must invest based on expert advice. Although experts can certainly understand the markets better, it is not always wise to follow the advice on an expert.
3. Another common stock market myth relates to long-term investment. The myth says that this is the only way to earn good returns. It is indeed a good strategy to retain investments for a long time, but good returns can be had in a short term too.
4. Another common stock market myth advises people to buy stocks when they are falling and to sell them on uptrend. A falling stock often lures investors to buy at cheap valuations. However, it is not true that the stocks that are falling would not stop declining after you have bought them. They may keep on falling if the fundamentals are not strong or if the market is on a downtrend. Similarly, a stock may keep rising even after you have sold, if the fundamentals are conducive.
5.  One common stock market myth says that you need to invest a large amount of money to earn good returns. It is simple mathematics that a good return can be earned on a good capital only. The reverse is also equally true and losses would also be higher in such cases. It is the quality and not quantity of the investment that decides the returns.

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