Blog : 10 Trading Myths

by Peter Leeds on January 29th, 2015

1. Roll The Dice

Many traders believe that investing in stocks is a form of gambling. However, in gambling every dollar won is a dollar lost by someone else. 
Gambling produces nothing, creates nothing, and therefore can only return to a winner what it took from a loser. It is a zero sum game.

With a stock, no other person would have lost money simply because your portfolio of stocks gained in value. The worth of common stocks increases without taking wealth away from anyone.

In fact when the stock prices increase, the amount of aggregate wealth increases for society as a whole. This is because common stockholders do produce something: They postpone the consumption of goods (ie, they save some portion of their income ).

As the business produces value, the stocks increase appropriately in price. 
 

2. Wait For It...

One of the most popular myths about investing in stocks is that in order to be successful, you must be able to predict the stock market's movements.

Why do people assume this? For some, it is because they do not understand that growing businesses give a positive and substantial return over time.

Some think they must predict price movements in order to be able to sell at the top of the range, and buy at the bottom.

Yet, any serious review of the results of market gurus over a long period of time reveals a track record that is no better (usually worse than) a simple buy-and-hold strategy.  Or a 5 year old.  Or a chicken.

Predicting stock movements is very difficult.  Predicting high quality businesses which will grow in revenues, market share, and stature is not difficult... and the underlying shares which represent those types of businesses tend to rise.

Myths 3 - 10 will follow in the coming weeks...