Stock market investments: Five myths busted

It has been over a year since equity markets bottomed out, beginning an epic rally that surprised investors and market analysts alike. Some experts are still cautious on the rebound, while others have have celebrated its resilience and even forecast the doubling of the level of benchmark indices in the next decade.

Many investors amid this sharp rally have felt the fear of missing out, while others jumped in to make quick returns. However, before deciding to invest, it is important to have an accurate understanding of markets and trading and be aware of the existing myths –

Stock market is a place to make quick money
If you historically see in long-term, stock market gives higher return that beats inflation, debt instrument and other asset class like bullion.

Stock market is a place to speculate
Factually speaking in stock market, price grows over time due growth in economy / particular company. Few speculate in stock market but this does not mean that it is a place to speculate rather it functions on hard economic facts. No doubt speculator provides liquidity in the market. Please understand people bet on cricket also but then it does not mean cricket is a betting game.

One can time the market i.e. buy at bottom and sell at top
Don’t ever believe that you can time the market. That means you cannot buy at lowest price and sell at highest price. Rather buy when you find price you are paying is less than value and sell you find price is running ahead of value / fundamentals.

Don’t ever think market will behave rationally
Market never ever behaves rationally or the way you feel it should be, though you are 100% correct. Stock market declined due to Covid one wave in Feb 2020 but it never declined when Covid second wave hit India in April 2021. Remember the famous saying “market can remain irrational , longer than you remain solvent,”

Nobody can be 100% right in stock market
Don’t think that you can be 100% right – the price at which you are buying, someone is selling . Your chance of being right is simply 50%. You have to be ahead of others to be correct more than 50% and higher your score, higher is the gain. But remember, you cannot be 100% correct as even the most successful investor are not 100% correct . In stock market everything is a possibility and nothing is certainty.

Biggest example is of Warren Buffett. He sold aviation stock last year in March/April 2020 when market declined owing to Covid. And aviation stocks made panic bottom at that particular point of time and thereafter demonstrated big uptick.

(The author is a market expert. Views expressed are personal)