You don’t need a driver’s license to excel in the stock market. – Peter Lynch
I have talked to quite a few about my story with the stock market and the opportunities it presents. Some are willing to take their chances and others have apprehensions.
I remember a friend of mine who told me he’ll invest when he has extra money. But I know he has a lot of extra. There may be other reasons.
Allow me then to give my views on some misconceptions you may have about the stock market, hoping that I could clarify some. I got these from videos I’ve watched and books I’ve read.
The stock market is risky
Indeed many lose money in the stock market. Some even lose it all to the point that they don’t want to hear any more anything related to the stock market.
You know what, in this field risk is magnified. Reward is overlooked. But what is risk? Let me take it from my virtual mentors Warren Buffett and Robert Kiyosaki.
Risk is not knowing what you’re doing. Being uneducated in any field you enter into is indeed risky.
If you buy a stock but don’t know what its business all about, like whether it’s making money or not, then you are really in a risky position. You are gambling your money.
If you listen to rumours from stock market traders, or even from brokers, instead of finding the answer yourself, you’ll be in trouble. Here’s what I suggest, ask the guys spreading the noise what is the business of the stock they are talking about.
I bet most of them won’t be able to say a sentence or two with clarity. So don’t trust them.
All they know are ticker symbols, volumes of shares traded, graphical patterns, and rumours. Don’t be like them. That’s why, according to statisticians, 85% of people in the stock market lose money.
Be part of the 15% who are indeed making money! These are the investors who know what they’re doing, or at least who listen to those who know what they’re doing.
It needs a lot of money
Many people think the stock market is the playing field of the rich. No.
I started small. I began with P5,000 (AU$130) only. Yes that’s right you can start with that amount. Then I added some more afterwards.
The most important thing is to have a feel of what it is to be in the stock market. For when it comes to money, many of us are very emotional.
Why are we so emotional? If we just put our extra money in a big bank, we are guaranteed that it will earn interest. Even though inflation eats up the interest, the guarantee still makes us sleep well.
In the stock market it’s different. There is no guarantee. Your small amount could go smaller. Your money could even go negative the moment you buy a stock. And you may start to be worried.
Don’t be discouraged however. It takes time to make sure money in this arena. Don’t be stressed. As long as you invest in a wonderful company and buy it at reasonable price, you should sleep well.
The last time I had my research project, I found out that less than one percent only of the Filipinos are into the stock market. It’s so much higher in the US. One reason could be the language spoken.
Every field has its own jargon. Nursing has, information technology has, and so on. If you happen to be in a circle of nurses and you’re not a nurse, better look for someone who has the same interest as you.
Yes, people in the stock market speak a certain language. It has its own jargon; but don’t worry the language here can be learned.
I remember before I started investing, once I browse the Business section of a newspaper I could see a lot of strange numbers in the Philippine Stock Exchange part. All looked alien to me! So I would just move on and look at the Entertainment section.
It took me sometime to understand those figures. Yes, it took time. Every field can be learned. And it doesn’t take a genius to learn the language in the stock market.
You can read books, watch videos from Youtube, attend free seminars, or ask your broker. You should learn some terms here. You are in a better position if you know something.
As Les Brown, an American motivational speaker, says, “If we knew better, we would do better.”
It can make you a millionaire overnight
For your information, a stock could go up 50% in a day! So if you buy shares worth P666,667 (AU$17,364) and the stock goes up that high, you will be a millionaire not overnight but within the day! Sounds enticing isn’t it?
But make no mistake about this. You could also lose 50%, hence making your money be reduced to P333,333 (AU$8,682) within the day, not overnight.
You know what? This could happen to you if you put your money in penny stocks. These are the stocks that are usually traded at prices below P1, and some are just above P1. And they are very volatile.
They could go up big and go down big, and therefore very risky. You can be a millionaire in a day and, don’t forget, be a bum too.
I told you before the story of my statistics professor. He invested in these kinds of stocks because he wanted quick money. One time he made $80,000 out of his $1,000 in one trade! But, continue reading please, he lost more money in his other trades.
My professor now dislikes the stock market.
Invest rather in companies that are familiar to you and are more profitable. Yes, their prices do not move much as compared to penny stocks, but over time you will see that they are heading upward. Just be patient.
*The picture is taken from Yahoo Images.