Stock Market Myths

Stock Market Myths
1 You can tell if a Stock is cheap or expensive by the Price to
Earnings Ratio
False: PE ratios are easy to calculate, that is why they are
listed in newspapers etc But you cannot compare PE’s on
companies from different industries, as the variables those
companies and industries have are different Even comparing
within an industry, PE’s don’t tell you about many financial
fundamentals and nothing about a stock’s value
2 To make Money in the Stock Market, you must assume High Risks
False: Tips to Lower your Risk: · Do not put more than 10% of
your money into any one stock · Do not own more than 2-3 stocks
in any industry · Buy your stocks over time, not all at once ·
Buy stocks with consistent and predictable earnings growth · Buy
stocks with growth rates greater than the total of inflation and
interest rates · Use stop-loss orders to limit your risk
3 Buy Stocks on the Way Down and Sell on the Way Up
False: People believe that a falling stock is cheap and a rising
stock is too expensive But on the way down, you have no idea
how much further it may fall If a stock is rising, especially
if it has broken previous highs, there are no unhappy owners who
want to dump it If the stock is fairly valued, it should
continue to rise
4 You can Hedge Inflation with Stocks
False: When interest rates rise, people start to pull money out
of the market and into bonds, so that pushes prices down Plus
the cost of business goes up, so corporate earnings go down,
along with the stock prices
5 Young People can afford to take High Risk
False: The only thing true about this is that young people have
time on their side if they lose all their money But young
people have little disposable income to risk losing If they
follow the tips above, they can make money over many years
Young people have the time to be patient
To learn more visit: http://wwwchoose-to-be-richcom/

Tags | bonds, disposable, earnings, fundamentals, ratios, stocks, unhappy, variables