In the financial world it is every man for himself.
You can’t believe everything you read or hear as investment advice tend to be incredibly subjective. In general, people will give you subjective advice if it is in their best interest. Over the years I've heard my fair share of investment advice, and fortunately for my portfolio's performance, have ignored most. The truth is that there are many investing myths that are rehashed time and time again, and today I'd like to set the record straight on five that I deem the most ludicrous statements.
Myth #1: Investing in stocks is akin to gambling
Gambling is based on the principle of taking money from the loser and giving it to the winner. It’s a zero-sum game that doesn’t create value whatsoever. Investing in stocks, on the other hand, creates value and wealth. Investing is a means of building wealth, where you take on adequate risk for valuable reward. Gambling is an extremely volatile practice where you only have one winner, and no value is created.
Fact: Investing in stocks is nothing like gambling. Gambling relies on luck and chance, where smart investors rely on strategic buying and selling of stocks.
Myth #2: You can’t invest successfully without an academic qualification in finance
An academic qualification might help you understand and make sense of an income statement, balance sheet, and cash flow, but it doesn’t guarantee investment success. Investing isn’t rocket science where the person with the 160 IQ outperforms the person with the 130 IQ. You don't need to be Einstein to invest fruitfully. It all comes down to having the right temperament and business insight, not having a degree in finance.
Fortunately for the aspiring investor, the internet is filled with educational articles, blogs, forums, eBooks, and videos. The material you need to expand your investment knowledge is merely a Google search away. Everything you need to know about investing and the stock market is available online. Be your own teacher. Start by focusing on how to correctly read and interpret an earnings report and a balance sheet. After mastering that, you can continue by learning about the most vital investing metrics to use when searching for value.
Alternatively you can do some research on successful stock picking platforms. These days you can find stock picking software and portfolio management tools that enable you to invest like a pro without any qualification.
Fact: Investing successfully comes down to empowering yourself with the best tools and tactics, not a tertiary education.
Myth #3: By following the pros, you will always make the right decisions
No human is perfect and we are susceptible to poor decision making. When it comes to investment, even professionals can make mistakes. They aren’t immune to the fluctuations of the stock market and face the same challenges as any other investor.
It is important to remember that people’s situations differ. What works for the pros might not work for you, because you have different financial goals, needs or limitations. A pro might be investing with major growth in mind, opening his portfolio to potentially more volatile investments. You on the other hand want a steady income over the long-term to secure a decent retirement. You want to avoid risk at all cost. Therefore what works for the pro, might not work for you.
Fact: It is better to make investment decisions based on your own personal objectives, guided by solid evidence of potential return, as opposed to trying to mimic a seasoned investor’s strategy that is not the right approach for you.
Myth #4: It is impossible to beat the market without professional help
If you fell for this myth, the following statistic will be shocking. According to the SPIVA U.S. Year-End 2014 Scorecard, 86.44% of large-cap fund managers failed to outperform the S&P 500 market index over a one-year period. The numbers stay consistent when viewing it over a five to ten-year term. This data strongly suggests you may very well be better off without a fund manager.
With the latest investment software on the market, you can achieve market-beating returns without the help of a professional. Today’s stock picking software delivers sound investment opportunities. If you get your hands on a trusted platform and you buy or sell when the platform does, you will be able to beat the market and the majority of professional investors.
Sally has done just that by making use of STRIDE as her stock picking and portfolio management tool. She is returning at a rate double that of the American stock indexes. Read her value investing journey here: Little Acorns Portfolio: A Working Mum's Value Investing Journey.
Fact: Financial advisors are in the game to line their own pockets and they don’t guarantee market-beating returns. You can, with the guidance of objective software, see dividends above market returns.
Myth #5: Sell in May and go away
The six-month period between May and October is historically and theoretically known as the most volatile period for stock market performance. The strategy revolves around the premise of selling your shares in May and re-entering the market in November rather than staying in the market throughout the year.
The past doesn’t reflect future performance, and you can’t rely on past performance to shape your decision. No one can predict the future of the market. The best practice is to buy and hold over the long term. Even if the stock market performs worse in May through October, the overall growth over the long-term is good.
Exiting and entering the market is accompanied by hefty transactional fees and tax implications, which puts you on the back foot, before even re-entering the market. Timing the market is a risky endeavour that you should never attempt. Therefore keeping your equities in the market and having a long horizon, makes for a more logical and lucrative option.
Fact: Investing in equities over the long term minimises fees, which in effect maximises returns.
Always be wary when it comes to your money. Unfortunately, most people only care about the size of their own pockets and not yours. Make wise investment decisions to secure a retirement for yourself and not for those feeding you with subjective investment advice or myths.