Don’t let April Fool’s pranks fool you in your stock market journey. Learn the truth and become an investment genius!
Are you ready to have your mind blown? April Fool’s Day is not just about playing pranks and pulling jokes on each other. Many investors have fallen prey to myths about the stock market, which has led to misguided investment decisions.
But fear not because we are here to bust those myths and help you to build a strong portfolio.
From diversification to PE ratio, we will separate fact from fiction and show you the truth behind some of the most common stock market myths. So grab a seat, and let’s dive into the investing world!
5 Stock Market Myths That are Fooling You
Diversification is Always the Best
When it comes to investing, diversification is a must. However, many investors make the mistake of over-diversifying by investing a small sum in almost every available investment option, which isn’t diversification.
For instance, if you invest in large-cap stocks, large-cap mutual funds, and Nifty ETFs, you might invest in the same stocks through various investment options, which is over-diversification and unsuitable for your portfolio.
To build a perfectly diversified portfolio, you should follow Benjamin Graham’s advice from his book ‘The Intelligent Investor’ and add not more than 10 to 30 quality stocks across sectors with low correlation. You can also invest in gold ETFs, digital gold, Sovereign Gold Bonds (SGB), or a gold mutual fund. Similarly, you can invest in real estate through Real Estate Investment Trusts (REITs), which have made investing in real estate much easier and cheaper.
Remember, diversification is essential, but over-diversification is not. Invest wisely!
The Stock Market is Gamble
While it is true that the stock market has had its fair share of volatility and scams in the past, it is important to note that things have changed significantly since the 1990s. Back then, some people would manipulate stocks by creating fake demand, causing massive fluctuations in the market. The Harshad Mehta scam was one such example of this kind of manipulation.
As a result, many retail investors who had invested during that time saw a significant drop in their portfolios and may have developed a negative perception of the stock market.
However, it is worth noting that since then, SEBI has implemented strict regulations on insider trading and pump-and-dump schemes, and they carefully scrutinise investors, promoters, and the media to prevent such manipulation.
So while the stock market can still be unpredictable at times, it is important to remember that the rules and regulations are designed to protect investors and prevent fraudulent activity. By doing your research and investing wisely, you can confidently navigate the market and build a strong portfolio for the future.
Buy Low, Sell High
While it may seem like a logical strategy to buy low and sell high by timing the market, the reality is that it is almost impossible to predict market trends and fluctuations over multiple cycles consistently.
It’s a common misconception that successful investors are those who can time the stock market to perfection. However, even legendary investor Warren Buffett has stated that focusing on predicting what would happen next can distract investors from making good stock purchases. Instead, he focuses on identifying individual shares with appropriate price levels.
So, the key to successful investing is not in trying to time the market but instead in doing your research and identifying strong, reliable investments that have the potential to grow over time.
Low PE = A Good Buy at A Discounted Rate!
While investing in the stock market, it is easy to fall into the PE ratio trap. Many investors believe that a higher PE ratio is always better than a lower one, but this is not necessarily true.
A low PE ratio may indicate a bargain, but it may also signal that a company is on the decline or that something is wrong with the industry as a whole. It’s crucial to consider growth, future potential, and individual bias before making investment decisions based on the PE ratio alone.
For example, FMCG and pharma stocks typically exhibit high PE ratios due to their consistent growth and ROE. In contrast, the PE ratios of IT stocks have been decreasing due to the current global tech climate.
Remember, while the PE ratio is useful, it’s not the only measure of a company’s value. So, always do your due diligence and consider multiple factors before investing your hard-earned money in the stock market.
Short-Term Trading Can Mint Wealth in No Time
Many people believe that the only way to make money in the stock market is through short-term trading and by trying to beat the market. But remember, there is no shortcut to wealth creation. While short-term trading can sometimes make you money, it is not a reliable way to build wealth. If you trade too much, you might also spend a considerable amount on transaction fees and taxes.
Teji Mandi offers an investment platform that emphasises the importance of long-term investment and wealth creation. Our expertly curated Flagship and Multiplier portfolios are designed to help investors create wealth over the long term. The Teji Mandi expert research team actively tracks stocks in the portfolio and rebalances them periodically, ensuring investors have access to crucial market opportunities.
So if you’re looking for a sustainable way to invest your wealth, consider investing with Teji Mandi .