If you have some money in the stock market and you're actually making money, then that's even better, because that doesn't happen often in our economical climate. Most people buying stocks won't admit it, but they're actually losing money in the stock market. Why is that? Because risk is a very real factor in the stock market that a lot of people either don't understand or tend to underestimate. They mostly treat the market as if it's one giant casino to gamble your hard-earned money into, as if any stock you choose has the same amount of chance of making money. That's not a very good mindset to develop.
I know stocks sound boring, especially for a blog titled "Escapist Adventures", but it's always been something that I'm very fond of because I believe that being responsible with money is the key for us to live free and adventurous lives. I've been investing for a couple of years now, hoping that the money I put in will pay-off in the far-future.
Most stock market gurus will tell you that there's a lot of learning and discipline involved when you get into the stock market. Obviously that's true, but what I don't like is that they don't try to expound any deeper than that. I'm fed-up with all these so-called stock experts refusing to go into detail on the learnings that a beginner to the stock market would find useful.
So with that said, I've listed down some misconceptions I had that I corrected once I got more experienced with investing:
Misconception 1: When you buy a stock, the Gain/Loss percentage you see at your port will start off as 0.0%
This is false. It sounds like it makes sense because theoretically when you buy a stock and as long as the price doesn't increase or decrease in value, then you'd have made no profit nor loss. That's reasonable logic, but what most people don't know is that online brokers tend to include their broker fees when you buy a stock. So unless the stock rises in price, you're more likely to see a red negative percentage after you've clicked buy.
It's not a very big percentage; it would be around -1.0% if you buy the bare minimum. Seeing the red number is kinda discouraging at first, because it has a psychological impact on your brain and you assume that you've made a mistake. It honestly stops becoming a big deal when a) you know that it's just your broker's commission, and b) you've done your research and you're confident the stock you bought is going to gain much more than that in the future.
Misconception 2: Investing has little to no risks compared to trading, and putting your money into stocks and never taking them out will allow your wealth to constantly grow upwards and increase in value
This is only partially true. Investing is less riskier than trading, but there are still some risks involved when you invest. In the long-run, investing in stocks will indeed increase your wealth, but the short-run will have moments where your stock will be plunging down and you begin to question if you made the right choice. It's very hard to not let your emotions get the best of you. I can speak from experience that there are times when I get so frustrated and irritated at how low my stocks have gotten.
Regardless of your decisions, the stock market will go through some ups and downs -- just like life itself. The beautiful thing about stocks and life is that when we're prepared for the downfalls, they become manageable and their impacts don't look so bad. It's also a nice thing to know that time and time again the stock market has proven that it can always rise higher and better in the long-run. Maybe the same is true for life itself?
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| Traders like to use terms like "bulls", "bears" and "death cross" to make their lives sound more exciting. |
I know stocks sound boring, especially for a blog titled "Escapist Adventures", but it's always been something that I'm very fond of because I believe that being responsible with money is the key for us to live free and adventurous lives. I've been investing for a couple of years now, hoping that the money I put in will pay-off in the far-future.
Most stock market gurus will tell you that there's a lot of learning and discipline involved when you get into the stock market. Obviously that's true, but what I don't like is that they don't try to expound any deeper than that. I'm fed-up with all these so-called stock experts refusing to go into detail on the learnings that a beginner to the stock market would find useful.
So with that said, I've listed down some misconceptions I had that I corrected once I got more experienced with investing:
Misconception 1: When you buy a stock, the Gain/Loss percentage you see at your port will start off as 0.0%
This is false. It sounds like it makes sense because theoretically when you buy a stock and as long as the price doesn't increase or decrease in value, then you'd have made no profit nor loss. That's reasonable logic, but what most people don't know is that online brokers tend to include their broker fees when you buy a stock. So unless the stock rises in price, you're more likely to see a red negative percentage after you've clicked buy.
It's not a very big percentage; it would be around -1.0% if you buy the bare minimum. Seeing the red number is kinda discouraging at first, because it has a psychological impact on your brain and you assume that you've made a mistake. It honestly stops becoming a big deal when a) you know that it's just your broker's commission, and b) you've done your research and you're confident the stock you bought is going to gain much more than that in the future.
Misconception 2: Investing has little to no risks compared to trading, and putting your money into stocks and never taking them out will allow your wealth to constantly grow upwards and increase in value
This is only partially true. Investing is less riskier than trading, but there are still some risks involved when you invest. In the long-run, investing in stocks will indeed increase your wealth, but the short-run will have moments where your stock will be plunging down and you begin to question if you made the right choice. It's very hard to not let your emotions get the best of you. I can speak from experience that there are times when I get so frustrated and irritated at how low my stocks have gotten.
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| A glimpse of my port back in November 2018. It's red with all the losses I've accumulated. |
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| This is my portfolio in January 2019. It's clearly looking greener than it did last year. |
Misconception 3: As long as you invest in Bluechip stocks, you'll start to see profits in a few months
Stock picking is a lot more complicated than that, and investing takes much longer than that. But when I was still a beginner in the stock market, I was naive enough to assume this misconception. I bought MEG and DMC in my first year of investing. I didn't hold onto them for very long because every week I was looking to see how much I gained. I was running out of patience because my gains were so small -- less than 1%, and I didn't understand just how long "long-term investing" really is.
It turns out I bought the stocks at a bad time when the market was going sideways after an upwards trend. Eventually the prices sunk and I sold all my shares because of disappointment.
Misconception 4: Stocks have compounding interest aka "interest on interest" that turns $1000 to $1,000,000 in 20 years
I used to hear so many fairy tales pertaining to investing wherein if you invest $1000, you'll get $1 million in 20 years thanks to compounding interest. These stories are very misleading, because the truth is it's almost impossible to find an investment vehicle that will constantly give you 5% and upwards per year. It most certainly isn't true in stocks. If your starting investment in a stock is 25,000Php and you don't touch it for 20 years, you won't get compounding interest. The closest thing to compounding interest in stocks is when your dividends are reinvested, which is what Mutual Funds do for you automatically.
Aaaand that's about all the time I have for this topic without getting too boring. There are probably some other things I've learned that I could talk about but nothing comes to mind that I want to extensively write about like I did with the 4 items I just mentioned. It was my own experience and time that taught me what was right and what was wrong in the stock market, but I also want to thank the book The Intelligent Investor for showing me the right path. It might not be the right path for everyone per se, but it's the path that works for me. Warren Buffet wasn't joking when he said it's one of the greatest books on investment ever made.
What are some misconceptions you had with stocks that you've overcome? Let me know in the comments below. What you learned can save a newbie from making a big mistake :)
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