Common misconceptions about investing in stock market

The stock market of Bangladesh has been down since 2010. Many amateur investors are now refraining themselves from investing which is causing the market to go down even more. Misconceptions have killed many potential investors’ dreams. There are actually quite a few misconceptions about investing in the stock market. Here are some of those:

1. “Investing in stock market is the shortcut to wealth”
The most common misconception about investing in the stock market, especially in Bangladesh, is that: one will become rich overnight by buying the stocks of a company. What they do not realize is that there is always a risk factor involved in investing money in the stock. The fact is there is no perfect time to invest in share market. And there is no guarantee that it will make one rich regardless of from whom the information is received. There is no shortcut here.

2. “Investing in a big name is a sure success”
Exactly like the reason mentioned above, there is no guarantee that investing in a big company will always bring success. In fact, when a company is running hot, the chance of stock value taking a nosedive increases proportionally. Also, buying stocks of a big company with increasing stock value will cost more money. This reduces the possibility of making a good profit out of it. It is always a smart decision to diversify the stocks. Maybe just10-15% of the total investment on a big name is a good idea.

3. “It is not smart to buy stocks when the market is doing terrible”
Only those who think that stock market will make them rich overnight have this idea. Investing in stock market should always be a long-term investment. Expert stock market investors buy the stocks of various companies while the market is down. The main reason behind it is that the stocks of big companies can be bought with a much smaller price. When the market goes up again, these stocks will hit the jackpot and bring in a huge profit. So it is wise to buy some stocks of various companies while the market is down.

The people of Bangladesh always end up blaming the government, regulator or the system when they end up losing everything. But having these three misconceptions is one of the key reason clueless investors lose their savings. Most investors think, “Hey! I hear people getting a lot of money from the share market! I have to try that.” And then invest everything they have in the market without thinking it through. Later on they blame everyone around them for their own shortsighted mentality. Getting rid of these misconceptions from their minds will not only help them but also help establish a much more stable share market.