The 5 Stock Myths

I hesitate to watch the business news every day at 9pm anymore– I’m afraid of what I might find. It is no longer surprise to find out that value of your portfolio is nearing rock bottom. At the end I hope you are still strong and not like me who is no longer watching news nor reading the newspapers. Losing money is painful, and when you lose a lot of it, it’s even worse. But that is not am talking about today, am looking at some of very popular myths about stock market that inhibits people from investing:

Myth #1 – You have to be a politician, millionaire or blessed by god to get hot Stocks.

In Kenya, where there is insiders deals taking place left and center, either in stock market or government contracts, this myth might as well has some basis of justification. But if we leave the ugly side of our country a side and you will realize that an ordinary person like you can make lots of cash in stock market. When you stop blaming the system, society, social issues, or economic realities for the lack of success, and look at the mirror closely, you will see smart individual who is totally capable of making the right investment decision. While being in a position of power or being a millionaire will obviously put you in vintage position to get large pool of nice deals, but as we seen before you too can get the hot stocks if you make a smart move.

The best thing is to feel part of the company in which you are investing in. This will enable you to take long term strategy and behave as the owner of the business. When share prices are down or not doing well the owner keep it cool and look at the way to improve and not how to exit.

Myth #2- You have to be part of bandwagon

Once in a while there is weird interesting counter in the NSE, think of East Africa Cable last year just before the share split. With hyper inflation and mad manipulation of the prices by the insiders majority of Kenyans rush to buy this stock hoping to cash on the mad daily capital gain. To be sure some people made a kill out of the counter but that is where there is a catch. At that time there were smart people trying to rush out while the ordinary guys were rushing in. Now I know many people who lost big after the share split and the prices fell from Ksh.77 to Ksh.39. For that don?t always try to be part of the bandwagon and if you do, know when to exit

Myth # 3: The experts are always right

In the volatile and young market like NSE, there no perfect forecast being given by the stock experts. What they say might work well for the developed markets but here investment is all about the emotion and history. The rush to buy Safaricom IPO was benchmarked on the earlier performance of Kengen shares. Although Safaricom is the most profitable company in the region, logical research outcome could have suggested that it could not measure up to the performance of Kengen shares immediately. Make effort to identify the counters which are currently not being talked about by the market experts and therefore in most cases are undervalued. More specifically, focus on probabilities and economic issues and let decisions be ruled by rational, as opposed to emotional, thinking.
Myth # 4: Watch the news and follow the prices

This is a misguided notion, and is more than emotional sentiment. Most people buy shares today and tomorrow they are already wondering why they did so based on the day price change. This is more pronounced, if the counter makes a nose dive and therefore listed at the biggest looser of the day. Let take for example the Equity shares, in most cases it comes out as the biggest price gainer. The opposite of ?biggest price gainer? should also be expected in the market of the same shares. It is very simple; recognize the psychological mindset of the market and the investors. In the long run the price trend can form part of the indicators as to suitability of the given counter but panicking after one day does not make any sense.

Myth #5: Once beaten, twice shy

It is as famous as you can imagine. Let appreciate the value of caution carried by this saying. But to what extent should we implement it in our investment strategy? The fact is investing in any thing involves a certain amount of risk and once in a while the risky as aspect of the investment shows up. So with that most people say never and truly it is never to them. The true explanation for this is contained in the following:

1. Lack of patience.
2. An abundance of fear.
3. Failure to recognize that any investment has its share of risk and if you falls in the wrong side that does not makes the end of the world

We must appreciate the fact that history repeats itself but not always. At the end the great investors know that staying in the game makes all the difference.