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Share Market Myths

ICICI Securities 02 Jan 2022 0 COMMENT

Introduction

Myths have formed regarding every aspect of human beings and the civilisations we inhabit. As one of the critical interconnection factors within society and cultures, trade has its share of myths. These myths can form around trade routes, the amount and nature of goods traded and the form of trade. The great myth of globalisation and free trade is one pertinent example of the last. Such myths often exist for so long that they become essential factors in driving market trends and influencing traders and investors' behaviour. Legends influence every kind of trade, including the stock market trade.

Share Market Myths

The stock market myths are wide and varied, extending from the rare to the widely believed.  The major share market myths that plague the trade in shares include:

  • One of the most common myths is that share market trade is like gambling. This myth arises due to the speculative nature of the trade and its vulnerability to market fluctuations. It is prevalent, especially among new investors. However, there is one key difference between share market trade and gambling. Share market trade contributes to economic growth, while gambling is a zero-sum game with no value beyond immediate profits.
  • Another myth prevalent about the stock market is that the share market is a trade of the rich and well connected, requiring extensive financial backing to make any noticeable profit.

While it is undoubtedly true that certain types of stock require significant capital, that is not the case for the entirety of the stock market. People with little money can invest in small quantities of exchange-traded funds (ETCs) or other regulated stocks to slowly increase their profit and thus their capital. For example, Rakesh Jhunjhunwala bought 5000 Tata stocks for just Rs 100.

  • Like the myth of the stock market trade being exclusively for the rich, there is the myth that stock market trade is only for experts with extensive financial knowledge. This myth arises due to the complexity of segments of the stock market, such as derivatives. However, it is not the case. Anyone can look up the proper procedures and practices and the risks and benefits of the stock trade. Such information is widely available on trading sites and documents.
  • The myth that only by taking a high risk can one gain high profits probably gained prevalence during the dot.com bubble in the late 1990s and early 2000s. While this may be true for some investments, generally, patience and cautious investments have higher chances of making a profitable trade than high-risk investments.
  • Another common myth is that all stocks eventually fall in value. While it is true that stocks do see a correction, a slight downfall in value that stabilises the stock for some time, this does not necessarily mean that stock value keeps falling. Well managed firms have increased in value over the decades steadily, despite inflations and recessions.

Additional Read: 5 smart tips for beginners in the Stock Market

Conclusion

Thus, stock market myths, just like any other myths, are just that, myths. While these may hold some factual truth, by and large, these are false or over generalisations of the trade. Thus, investors must educate themselves to avoid falling into the trap of one or more of these myths, which may cause them to make bad investments or drive them to prevent trading in the stock market altogether.

Disclaimer:

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.