5 Stock Market Myths That Simply Won’t Disappear

Here at CaliforniaConsumerBanking.com we specialize in bank deals for top CD rates, credit cards, loans and so forth. Every now and then our Personal Finance editor wants to put in an article about the stock market. Though we concentrate on interest rate instruments, you should know about other ways of investing…

Here are 5 stock market myths that simply won’t go away:

1. Stocks make you about 10% a year on average

Think again. That’s like saying real state always goes up; it sounds true but it took a whallop of reality to knock some sense into people. In actual fact, the largest dynastic families that created fortunes only grew their wealth at around 7-8% per year and experts say that for the next decade, we’re likely to see returns much less than 10% per annum until P/E ratios return to the mean and we clear up some structural economic problems. Keep abreast of John Mauldin or John Hussman of Hussman Funds for information on expected long run returns.

2. It’s Always a Good Time to Invest in Stocks

Says who? If you invest at the top, you’re broke. In fact the 10-year rate of return on stocks is negative. If you bought ten years ago you’re now at a loss and CD buyers and bond buyers and interest rate seekers have made the money. If you’re thinking of investing, check out Market Timing Research.com and their seasonal stock charts and free software. You might argue that you can’t time the markets, but you better at least look at the market timing for your stocks before you jump in, and they do the best job of it. Look, the way to earn high returns from the market is to buy stocks cheap in relation to their future cash flows, or use some form of value investing criteria and buy when you’re getting assets priced less than their worth. Therefore, you might want to seek out a value investing newsletter or fund and decide if this is the right approach rather than getting in blindly.

3. Higher Returns Require Larger Risk Taking

Says who? That’s an MBA type answer based on stock market betas that correlate a stock’s volatility to potential returns. In actual fact, Warren Buffett, the grand investor of this past century, made all his money buying boring companies that gave off cash flow, and then he reinvested that cash in more businesses that gave off cash flow. That’s it. And look where he is today. Boring is at times better, and certainly less risky. In general this might be true, but it might not apply to your way of investing. Be careful about this stock market myth.

4. The Economists are Predicting …

What a stock market myth to invest by economist group think! The best and brightest today are in the Federal Reserve and Treasury and Wall Street, and which of these guys foresaw the banking collapse, real estate collapse, commercial property slump and all these other problems? You might even argue they helped create it. So think for yourself. We rather trust a maverick outsider like Jimmy Rogers and his opinions on youtube, or a contrarian, than the group think of economists. They tend to follow the crowd and the crowd tends to be wrong at the extremes.

5. Picking Stocks is What Makes Money

Wrong again. Time after time, study after study, the research shows that it’s asset allocation that makes you money, not individual stock picks. That’s a big stock market myth. In other words, whether you put your money in this stock industry group, or this asset class, is what wins you the dollars. When you hear of some guy making a fortune from a single stock, it’s like hearing of a man who won the lottery or a casino jackpot. We correlate those stories with the idea of picking stocks to make our fortune, but the truth of the matter is that putting your money in the right asset classes over time brings you the best compounding and builds the most wealth.

You’ll have to resist the tendency to believe the crowd and dump these stock market myths and THINK to make more than cd rates of return!


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