5 common misconceptions about the stock market

Every investor before investing in the stock market thinks twice whether he should invest in the market or not. Those who avoid investing in the stock market lose out on a great opportunity for wealth building. This is mostly because of their beliefs regarding some common misconceptions about the stock exchange.

Stock market provides everyone a great opportunity to invest and earn a huge amount of money in return. To be able to make money successfully, here are five common misconceptions that you should avoid:

1. Share market is for the rich

The statement that the share market was only for wealthy people was the case in the past as the brokerage fees were very high. But due to the arrival of online trading and flat brokerage fees, the price per transaction is economical today than it was ten years ago. You don't have to have an enormous amount of money to invest in the share market. Anyone with an internet connection, online trading account, and a little bit of money can start trading.

Due to the era of the internet, financial information regarding the companies, stocks and real-time market conditions are available to everyone nowadays; earlier this was only available to stock brokers. This has also allowed the investor to make real-time practical decisions regarding his/her investments.

2. You must be a financial wizard to start investing

One of the common misconceptions about the share market is that you should be a financial mastermind to make profits in the stock market. But the fact is, you don't have to be related to finance at all. There is a simple thumb-rule for the share market, higher the risk, higher the potential reward. You see a company that you think can make huge profits in the future, buy its shares and sell them when they have increased in their price. It is as simple as that.

If you still think that the share market is complicated for you, hire a stock broker who can take care of all the formalities of the stock market. The broker will make it easy for you to invest and earn profits in the share market.

3. Trade market forecasts are reliable

Trade market forecasts are as reliable as an astrologist predicting your future. You would think that they can be right at times but are never 100% safe. Taking a decision based on the market forecast is one of the main reasons causing an investor loses money in the share market.

Stock market forecasts should be used only as a tool so that you are ready and careful about what can happen next. You should take the reliability of stock predictions as a little misconception and nothing more.

4. The price will go up eventually

Whatever maybe the reason for believing in this misconception, there is nothing riskier than investing in a stock that has not risen in value for months. For example, X is a big company whose share's price was at its all-time high at Rs 1000 last year but has since fallen to Rs 250. Y is a smaller company whose share's price has risen from Rs 200 to Rs 600.

Mostly, every amateur investor will buy the shares of X company basing their decision on the fact that the share price of X will you up eventually as it is a big company. The risk factor in this ruling is very high and can prove to be the main reason for the loss.

The goal of investing is to buy stocks of a company at a reasonable price. If the company has a sound business, it will not matter if it is big or small or has enormous goodwill. Buying companies only because their market price has fallen will get you nowhere.

5. It's a good way to make quick money

If you're an experienced investor investing in huge companies and buying and selling lakhs of shares at a particular time, a small rise in value can pay considerable sums quickly. If you are new to investing, you have to understand that the stock market can prove to be a platform for you to make a huge amount of money. But it can also force you to lose all of your money too.

Share market is volatile and the trends are ever changing. Just because you have made a profit in some other investment doesn't mean that it is a surety that you will be successful in the share market too.

Feel free to take suggestions from financial advisory firms if you are still not sure about investing in the share market. Online brokerage firms like 5paisa.com will allow you to adequately invest in the market with flat brokerage fees as low as Rs.10 per transaction.