DEMYSTFYING STOCK MARKET MYTHS..........

Myth 1 - High Market CAP Stock will give highest returns

If this is true then Stocks of Reliance and NTPC should be at highest CMP and Rohit Ferro should be at 150 levels.

Market CAP of GMR Infra – 18,000 Cr, CMP=110

Market CAP of Rohit Ferro – 350 Cr, CMP=150

Don’t get trapped in Brokers so called TIPS. Do your own analyses on each stock its vision, economy and sector relation, government involvement in that stock etc?

Myth 2 – Investing in Share Market is just like Gambling

Nothing could be more untrue than this myth, yet it's a big reason why many people shy away from the stock market. To understand why investing in shares is inherently different from gambling, we need to review what it means to buy a share.

A share is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, people think of shares as a way to test their luck, and they forget that stock represents the ownership of a company. In the stock market, investors are constantly trying to assess the profit that will be left over for the shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and thus so are the future earnings of a company. Assessing the value of a company isn't an easy practice.

Gambling, contrary to investing, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created. In contrast, by investing we increase the potential to increase the overall wealth of society. As companies compete, they increase productivity and develop products that make our lives better. Don't confuse investing for wealth creation with gambling's zero-sum game. In investing the seller could be selling because they have made substantial returns with the share; this does not stop the buyer from making additional returns if it is a share from a well-grounded company. The cardinal rule then becomes ascertaining the solidity of the company before investing in it as opposed to testing ones luck.

Myth 3 – Fallen Shares will eventually go up

Nothing is more destructive to a new investor thinking that a stock trading near its bottom is a good pick always.

Example:

Suppose you are looking at Two Stocks, Stock A which rose to Rs50 in last Year and now come at Rs8 and Stock B (a smaller company with good potential) has risen from Rs5 to rs10. Which Stock will you buy????? It is interesting to note that a major chunk of investor will choose to invest in stock A without thinking about the future potential power of Stock B. Thinking this was is a cardinal mistake in investing

If you are an investor, price should only be one part of the investing equation. The goal is to buy good companies at a reasonable price. Don't confuse value investing with buying companies solely because their market price has fallen; value investing is about buying high quality companies that are undervalued by the market.

Myth 4 – Having just a little Knowledge, because it is better than none, is enough to invest in the stock market.

For investing in Stock market you must understand the economy, the political factors related to that stock and future prospects of that company in detail. Invest in business rather then in a company.

Because the future of your investment is tied to the future of the company, you should think like an owner. Ask yourself: What kind of a company would I want to own and what kind of a management would I like to have working for me?

Myth 5 – P/E Ratio Tell you whether stock is Cheap or Expensive

Any investor can find P/E Ratio of company on any financial website. So P/E must be the great way to compare stocks. Right?? I Say WRONG… absolutely WRONG

P/E ratios don’t say anything about a stock’s value!. One of the most important things you’d like to know is the worth of each stock based upon its earnings, profitability and other key financial data. In other words, you’d like to have a sense of the stock’s intrinsic value.