The Zimbabwe Stock Exchange (ZSE) will close on April 2, 2021, since it is Good Friday – a day Christians commemorate the crucifixion of Jesus Christ. The local bourse, like many other stock markets across the globe will also be closed on Monday subject to the Easter holidays and will reopen on Tuesday 6 April 2021.
Investing in stocks is essentially a wise choice, but there are myths often associated with stock markets. To a new investor, many seem like they could be true until you really unpack them. Below we try to debunk some of those.
The stock market is only for the rich and stock brokers
The stock market is not just for rich people and brokers. Yes, there are certain stocks with high prices you would want to avoid until you have more money. But there is no reason you cannot start investing now and add to your positions over time. With the data and research tools now available online, the stock market is more accessible to the public than ever before.
A little knowledge is better than none
This is dangerous thinking when it comes to investing. Having a little bit of knowledge can be dangerous in investing; successful investors carefully research their investments or use the services of a trusted advisor.
It is crucial in the stock market that individual investors have a clear understanding of what they are doing with their money. Investors who do their homework are the ones that succeed.
Stocks that go up must come down
The laws of physics do not apply to the stock market, and there is no gravitational force to pull stocks back to even. Although it is not true to state that stocks never undergo a correction, the point is that the stock price is a reflection of the company. If you find a great firm run by excellent managers, there is no reason the stock will not continue to rise.
Fallen angels will eventually go up
Know the adage “Those who try to catch a falling knife only get hurt?” Whatever the reason for this myth’s appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low, for instance, is a good buy.
Price is only one part of the investing equation (investing is different from trading because the latter uses technical analysis). The goal is to buy growth companies at a reasonable price. Buying companies solely because their market price has fallen will yield nothing. Investing in stocks should not be confused with value investing, which is buying high-quality companies that are undervalued by the market.
Investing in stocks equates to gambling
This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock represents 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, investors think of shares as simply a trading vehicle, and they forget that stock represents ownership.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Gambling, in contrast, is a zero-sum game. Gambling merely takes money from a loser and gives it to a winner. No value is ever created, whereas the overall wealth of an economy increases through investing. As companies compete, they increase productivity and develop products that improve lives. Investing and creating wealth should not be confused with gambling’s zero-sum game.
Check the ZSE investors guide to know how you can invest on the bourse.
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