Share market is a marketplace like Amazon, where you can buy and sell part ownership of a company. Even though it sounds simple, the process and verification involved for sellers and buyers are a little stringent compared to Amazon. The term ownership might be a little confusing for a commoner like you and me. Let me shed some light on the term. The ownership of any company is legally depicted in terms of share, otherwise termed as stokes; a single share/stock of any company is the smallest unit of ownership. Let’s say: company A has a total of 100 shares, and if you buy one share of that company, you own 1% of that company. Once the company starts to sell ownership in the share market, the company is termed as a public limited company or simply limited company. The person who buys the shares is called a shareholder of the company. The person who also starts a shareholder and distinguishes them from others are usually called promoters.
The next thought you might have in mind is how these ownership prices. A share or stock has two prices; one is the face value, and the second is the market value. The face value of a share is calculated based on the initial capital investment from the founders or promoters of the company. For example, Company A was started by Mr. B and Mr. C. They put together a total initial capital of ₹100000/- to start the company. The company issues shares worth ₹100000/- to the founders. The founders say that we need to have 10000 shares of value ₹10/-, This selection is simply random.
The face value can be any number based on the number of shares initially issued and the initial capital. Once this face value is fixed, we can only change this value by passing a resolution during AGM, aka Annual General Body of shareholders. Then the other type of share value is the market price or market value. This is simply the price at which we can buy a share from the share market. This price depends on many factors such as the company’s revenue, profitability, management team, the policy of the government, etc. When you hear about the share price from the share market, this price or value is actually mean. As a sharemarket buyer or seller, we only need to care about this value. Hope this introduction gave an idea about the stock market in simple words without any jargon. Let’s move to our topic of interest, The myths and facts about the stock market.
When we approach the stock market, we have so many notions of negativity as an ordinary man. Let’s bring up the topic of the share market in a social gathering or in a family discussion. We will come across more negative comments than positive comments. The statements such as; “the share market is gambling, we will definitely lose money, it will eat all our money, its a risk, risk, risk,” are thrown at you no matter who you are talking to unless the person has some knowledge in the stock market. We will hear the word “Risk” in every subsequent conversation. Is the share market is actually a risk? Is it gambling? What do you think? Let’s explore some common myths about the share market and its actual facts.
Myths and Facts
- Share market investing is gambling and speculation
This myth about the share market is well-intentioned but misguided advice. This is purely based on the experience of people who lost their money in the stock market, which makes them consider advice against stock market investing. But the truth is far from the statement of these poor people who lost money. The gambling process is clearly based on winning or losing. Still, the stock market movement is driven by so many factors. A little introduction is given at the beginning of this article about these factors.
A few of the critical factors are the market’s history, the present economic condition of the country and the company, and information about the company you want to invest in. The outcome of gambling is entirely random, but we can successfully make a good return from the share market with adequate research and time.
- the stock market is for experts
Another myth is that the stock market is exclusively for a closed circle of experts. Still, in reality, anyone with the proper documentation can participate in the share market and makes lots of money. The stock market is an entirely regulated area by governmental bodies; as an individual, there is no restriction or prerequisites for participating in the share market. You don’t need any expertise to start investing in the share market. If you understand basic mathematics and accounting (you can gain accounting basics from a simple google search now), that’s enough.
You need to have a Demat account and trading account with a special service provider called stockbroker, which can be easily obtained by providing your KYV documentation. You can directly approach a stockbroker or go online to open a Demat and trading account with a few steps. A few famous stockbrokers are Zerodha, Upstox, Angel Broking, Geojith, etc.
- You can only make money by investing a lot of money.
This myth drags many people from participating in the stock market. Many people believe that we need to have a lot of money to start participating in the share market, but in reality, we can start trading or investing in the share market from as low as ₹50/-. This belief is the culmination of a misunderstanding that we need a lot of money to profit from the share market. But actually, to make a profit, we don’t need a lot of money, rather a good understanding of the company we invest in.
- There is only loss, no profit for a common man like us; the big players loot our money.
This myth is absolutely wrong. There will be some loss for first-time investors like us in the share market. Still, as we get experienced, we will learn from our mistakes and know how to effectively mitigate losses. This makes many first-time investors back out from investing further. However, all the big players in the market, such as mutual funds and investment banks, also take losses as we, the ordinary investors (retail investors). The main factor is to learn from our mistakes and never repeat the same mistake again.
Investing is a type of average out game; there will be some losses and some returns, but as we calculate our return over a period of time, we can make a good return with self-discipline and good strategy. Historically, the share market gives return attest 10-15% per year on CAGR terms. An investor who can spend some time researching, groundwork, set definite goals, and take emotion out of the equation, can increase this return to 20-25% with little more effort.
- We are taking high risk for high returns from the stock market.
Certain opportunities in the share market offer a high risk for high return. However, this is not true; not all high-risk investments turn a high return. To succeed in a high-risk investment, you need thorough research, patience, and lots of caution. Many famous stock market players made their wealth by choosing various small risk investments and paying them off in the long run.
- I just want to try the share market, not take it seriously.
People in the game think that there will be no consequence in investing in the share market, so they simply try to invest or trade based on tips and suggestions from friends, family, WhatsApp gurus, telegram channels, etc. But eventually, they lose most of the money and feel inclined to further invest in the share market. In fact, for a fruitful investment and return from the share market, a participant needs thorough research, financial analysis of the company, and the present market condition.
This is not a tedious task for people interested in numbers; they can quickly create an investment plan. All the information about a company is simply a google search away. Imagine a time where investors are required to read thousands of pages of annual reports of many companies to select a suitable investment. This modern internet era gives us the advantage of lots of information at our fingertips. We can make use of those data to succeed in our investment goals.
Conclusion
Share market is a tool to make wealth for us and our coming generation. Like other investment instruments such as insurance policy, mutual funds, fixed deposits, etc., we can make a good return from the share market with sound research, analysis, and preparation. As we can overcome these myths, we can be confident about creating wealth from the share market and moving along one step at a time.
