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Stock Market and Investing Myths Part 1 – Five Investing Myths EXPOSED!

The recent stock market crash of 2008 has left millions of investors questioning their conventional investment reasoning. Financial advisors are finding it more and more difficult to convince their clients of sound financial plans — and rightfully so. Americans are wising up to the reality that investing may be more complicated then they originally thought. Or maybe investing is not more complicated. Maybe investors have simply been miseducated.

Miseducation can come in many different forms. Television stories, uneducated advisors, propaganda pieces, not to mention just good ol’ fashion uninformed word of mouth. In fact word of mouth is probably the biggest proponent of miseducation. But just because Uncle Jimmy says it, doesn’t mean it is true. In this multi-part article series I’m going to expose several myths commonly associated with the stock market and investing. If these myths are deeply held beliefs of your own I guarantee you can improve your financial performance by simply re-educating your investment mindset.

1. The Stock Market Must Go Up To Make Money

In my years of trading and education I have found this myth to be the most common mis-understanding of all. It makes perfect sense. When it comes to investing no single message is preached more clearly than this one. “Good news on Wall St. today, the stock market rose 79 points.” Or “Tough day on Wall St as stocks fell a staggering 87 points”. These headlines and messages are literally seared into the subconscious minds of virtually all Americans. Even well educated people like myself who understand how the market works find it hard to not smile when we hear of huge gains on Wall St.

However just because the market goes up it doesn’t mean people made money. And just because the market goes down it does not mean people lost money. The truth is there are three directions the stock market can, and does move: Up, Down, and sideways. And you better believe if there are multiple ways the market can move there are also multiple ways to make money with each directional move. Myth: BUSTED.

2. Stock Market Investing Is Risky

This is an equally popular myth yet one which can also be debunked. I already stated that there are three ways the market can move: up, down, and sideways. And I’ve already established that most people think when the market goes up you can make money. But that is only 1/3 of the choices since the market can move three directions. That means the odds are stacked against you 2/3 of the time. With that math the risk associated with this myth may appear true. However I also said there are different strategies to make money with each of the directions the market may move. That means with a little education you can learn to make money in each of those three directions.

The risk here is not in the market itself but rather in the lack of education. For people who do not have a proper education of the stock market these investments can absolutely be risky. In fact if you do not have an education the odds are 2/3 against you that you will receive an education the hard way – losing money! However with a little education and a little knowledge you can make money in 3/3 market directions. Myth: BUSTED.

3. Over 20 Years The Stock Market Always Goes Up

This myth is a favorite of financial advisors and to be honest it is kind of true. During the last 100 years (which I expect encompasses your lifetime) we’ve had an interesting series of events. Let’s look at that for a moment: If you invested $10,000 in 1909 for 20 years by 1929 that money would have been worth over $30,000! Not bad. But if you had started in 1911 and invested $10,000 20 years later in 1931 you would have just right around $10,000. Oops. Wrong 20 years. If you had invested $10,000 in 1919 for 20 years it would have been worth roughly $10,000 in 1939. Oops. Wrong 20 years. If you had invested $10,000 in 1929 (God Forbid) getting back to a $10,000 value would have taken until about 1955 (A full 26 years!). Oops, wrong 20 years. $10,000 in 1939 would have been worth about $50,000 in 1959. Not bad. 1949-1969 would have yielded a similar result. 1959-1979 would have made some money, but not nearly enough to keep up with inflation. 1969-1989 would have roughly doubled your money. 1979-99 was great. 1989-2009 worked well too. But what about 1999-2009? uh-oh. If you invested $10,000 in the market in 1999 today that $10,000 would be worth roughly $10,000.

My point is the market doesn’t always go up. And it is really un-cool if you’re one of those people who get stuck in a 20 year down cycle when you’re ready to pull out your money. And is it really worth waiting 20 years to find out if you will get to retire during a market high or a market low? To top that off currently (in 2009) many economists are predicting the next 15 years to be one of those large down cycles. With such a spotted history and so many negative predictions is it really worth risking the next 20 years to be anything like 1911, 1919, 1929, 1939, or any of the other rough 20 year cycles? Truth is the market does NOT always go up over any 20 year period. And as 1909-1911 showed us, only a couple of years can make the difference between a really great 20 return and a downright devastating 20 year period. Myth: BUSTED.

4. The Best Way To Make Money In Stocks Is To Buy And Hold

Buy and hold is traditional wisdom. But it parallels the first three myths we’ve talked about. The idea is you buy a stock and hold it and in a few years it will be worth more. Hopefully a lot more. Since buy and hold doesn’t always work people get the idea that investing is risky. Truth is investment risk is directly proportional to the amount of investing education a person has (or does not have). In the professional investing world we have variation on Buy and Hold – we call it Buy, Hold, and Pray. That’s because with this strategy a person buys a stock, they hold it, and pray it goes up. Of course with three potential market directions, and the reality that markets do not always go higher, the investor may be praying quite a bit only to realize their chances of having that prayer answered are about 1 in 3! Myth: BUSTED.

5. News And Research Groups Have the Hot Stock Tips

This final myth is one of the most popular investment strategies for high paid professionals. Some people make a lot of money selling these hot investment tips to people who want to put their money in the market. However the foundation of Dow Theory actually proves this method to be a myth. Charles Dow wrote around the turn of the 20th century and is the father of the Dow Jones Industrial Average which we often refer to as “the market”. He states in his theories that there are 3 phases to the growth of a trend. The Accumulation phase, the Public Participation phase, and finally the Dispersion phase. The accumulation phase is when major institutions begin to buy. Like the name suggests the public participation phase is when the masses of the public begin to buy. And the dispersion phase is when the major institutions (who started the trend) begin to sell and “disperse” their positions. The interesting thing about this is Dow directly tied news related stories to the dispersion phase. Basically stating by the time it’s in print and the news is high, the move is over and the “smart money” has already begun dispersing their positions.

Using the basis of Dow Theory alone we can assume if it’s in print it’s too late. In fact generally speaking this proves true among printed stock recommendations. I recently analyzed one of these picks with a student. The pick was for the stock to be higher in 12 months yet after a brief analysis we determined there was absolutely zero green signs to push forward with this trade. There were about 8 yellow indications saying this might be a good trade in the future, and there were 3 red flags telling us reasons this stock should go down in the near future.

The reality about hot stock tips is they are usually not that hot. Traditional individual analysis is always more reliable and avoiding these tips will help you avoid losses in your portfolio. Myth: BUSTED.

How to Invest in the Stock Market for Beginners

It can be confusing for beginners to learn how to invest in the stock market, but if you are determined to try your hand at investing (or worse – day trading), here are a few things you should think about before making your first trade. Trading stocks involves putting money at risk and can result in loss of your entire investment. It is also possible (in the case of leveraged investments) to lose more money than you put at risk. Taking a couple of precautions along the way will help you make your first steps a little less perilous.

How to Invest in the Stock Market for Beginners Tip #1: Start Small and Learn the Mechanics
Your initial investments should be made from a cash deposit you have made with a broker. Your broker holds your cash for your account, and executes buy and sell orders on your behalf. You have to open an account with a broker in order to trade. Before you go running about searching for a company to trade with, consider the size of the investments you wish to make. As a new investor, it is wise to make your first trades as small as possible. The reason you start small is so you can begin to understand the mechanics of how buying and selling stocks works without putting your whole investment stake at risk.

How to Invest in the Stock Market for Beginners Tip #2: Buying and Selling
Given you will be starting out with a cash only account your ability to make transactions will be pretty limited. In most cases you will have the ability to buy shares of companies, and later sell shares you already own. All investing activity can be pretty well boiled down to those to basic actions: buy or sell. While it does get significantly more complicated than that, for the beginner it is enough to leave the discussion there. You can sell stocks you bought previously, or you can buy more shares, or you can sit pat and do nothing.

How to Invest in the Stock Market for Beginners Tip #3: Trade What You Know
I regard this last tip as the most important. Trade companies or industries that you know something about. If you’re big on fashion and know fashion trends – then you should be investigating and buying (or selling) apparel companies based on what you know. If you understand technology, then you need to be taking serious looks at those specific tech companies you understand. The best tip I can give as to how to invest in the stock market for beginners is to start small, learn the basics, and trade what you know.

Stock Market Trading Tips – Finding Success in Stock Trading

If you are looking for a way to make money on the internet, you can choose from several options. However, if you are the type who wants the get-rich-easily option, you can try trading in the stock market, but always keep in mind that stock market trading can be risky, so take time to learn some stock market trading tips that can make you successful in this venture.

Always remember though that if you want to engage in trading, it is important to be well prepared as trading can be risky and you can lose money as fast as you can gain it, and at times, it can be frustrating. To help you find success in this venture, here are a few tips that might help.

- Learn everything you can about stock trading. Learn the terminologies and the jargons. You may encounter a lot of these terms when you go into actual trading. Learn how to read charts and trends. If you opt to choose a stock trading online, understand everything about your software you are using if you are using a program to help you read and analyze the trends.

- Be someone who is comfortable working with risks and uncertainties. One of the stock market trading tips you have to keep in mind is to have an attitude of a successful trader. Successful traders are those who are willing to commit mistakes. They are those who are not afraid to lose money, but also know when to stop before losing too much. Be a disciplined trader and make sure you stick to your system. A disciplined trader is most likely to succeed than those who are not.

- Have a system and be consistent in sticking to that system. Most successful traders follow only a specific strategy and sticking to it always. One of the keys to being successful in trading is your consistency in purpose thus you can find success if you also have consistency with your strategy in trading.

- Find a broker who provides recommendations on what stocks are particularly good for portfolio. You can also get a full service from a broker and let him do the research as well as keep himself updated on the financial news and just present you with the best investment. However, availing of the full services of a broker may also mean hefty commissions, so make a good option when it comes to choosing a broker, and make sure you choose a good one.

You have to keep in mind too that stock trading is not just all about technical analysis, reading the trends, buying and selling, and watching out for news on the firms and your investments. It is equally important to have your emotions in check in stock trading. With this high-risk business venture, it is inevitable to have some losses over time and you just have to move on, learn from your mistakes and not linger nor dwell on your mistake.

You have to deal with frustrations too and thus, you have to be tough enough to stick with your strategy and move on with your investments but also make sure that you know when to stop. Keep in mind always some important stock market trading tips that will guide you in making wise decisions with your investment as well.