The 7 stock market myths that stop investors from profiting safely

stock market

When it comes to the stock market, there are so many myths out there.

I’m not sure if it comes down to deceitful educators, cagey fund managers, or general confusion…

But most people don’t understand the truth about making money with stocks.

I’ve worked in finance for the last 25 years and I can tell you honestly that the stock market is much less complicated than it seems.

There are 7 big stock market myths out there that cause people to make all sorts of mistakes, including:

  • Taking far too many unnecessary risks
  • Investing too much in the wrong stock
  • Getting spooked and making hasty decisions
  • Looking for “hot” stocks in all the wrong places
  • Ultimately, wasting time, money, and energy

I know the stock market has an air of mystery. But when you clear away the fog, you can make smart, safe, financially lucrative investments…with far less risk.

Let’s bust these 7 stock market myths so you can stop gambling your investment and start making profits.

The Myth About Risk

The first stock market myth people believe is that to have high returns, they need to have high risk.

Most people have a lottery mindset about the stock market and look at their investment like buying lottery tickets. They think that they’re probably going to lose..but it’s still worth the risk because they might win big.

This isn’t true at all! I actually think you shouldn’t risk anything in the stock market — and I don’t advise my clients to, either.

Instead of asking “How much can I risk on this investment?” you should ask, “How much I should invest safely to get very satisfactory returns?”

Instead of high-risk investments, look to invest in very low-risk investments, over time. In other words, minimize your risk to almost nothing, and then slowly grow your accounts.

That’s the thing that makes you rich! It’s not about “big risk, big reward”. It’s actually about properly protecting yourself and doing the things we talked about in this blog post, like having tiny position sizes and understanding the bigger picture of the market.

Like I always say: Profit is a byproduct of good risk management. Don’t go for high-risk stocks. Invest in safe stocks that will give you satisfactory returns…year in, year out.

The Quality vs. Quantity Myth

Someone with $1,000 to invest might check out, say, a stock of Google (which is $1,000) and say, “That’s too expensive. I’d rather buy a cheap stock so I can own more of it.”

Rather than buying one share of Google, they’ll buy 200 shares of a crappy stock at $5 a piece.

Most people think you need to have a large quantity of stock to make good profits. This is a complete myth!

The most important criterion in a profitable investment is quality. Always. You want to invest in a good stock, whether you can afford one share or 1,000 shares.

You’re much better off investing in fewer shares of a better, more expensive stock (as long as you follow the Fast Start Stock Checklist to know it’s a safe investment) than lots of shares of a cheap, crappy stock.

The “Next Starbucks” Myth

Another myth is that big, well-known companies don’t produce good returns. Everybody thinks they need to find the next Starbucks — the little-known stock that’s just about to explode — to make a lot of money.

In reality, there’s no need to discover the next Starbucks when there are great big companies out there that are throwing you opportunities, day in and day out. You don’t need to speculate.

I like big companies because they’re usually more reliable than hot, new ones. So they’re generally a much safer investment.

Big companies also have many years of financial data available to help you make smart investment decisions. Inside the Blueprint course, our students learn how to use financial data from the last five years to ensure a company is low-risk before investing.

If you’re looking for the next Starbucks, you likely won’t have that kind of reporting because the company won’t be old or established enough yet. So you can’t invest in the stock market, worry-free — it’ll be much more of a gamble.

Bottom line: Investing in big companies can be a very low-risk way to make great money.

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The Bad News Myth

Another stock market myth is that bad news equals bad returns. In actual fact, you should embrace bad news because it usually means good returns.

Bad news causes a company’s stock to plummet. But as long as a business is under solid footing, it’s actually a great time to invest.

Like when Facebook was dealing with privacy issues, our Blueprint students got really great returns.

Here’s why…

Facebook is a money-making machine. But it quickly became very expensive and overheated, so it was overvalued by about 20-30%.

After the “bad news”, Facebook stock went down by 20%. It dropped to a fair valuation so it was a good time for investors to finally have a piece of it.

Bad news is temporary. And it’s potentially a very good point of entry to a strong, established stock.

The key is (as always,) it still depends on the quality of the company. If the quality of the company is great, awesome. Invest in that stock after bad news!

If it’s not good quality…then bad news, good news, you shouldn’t really touch it anyway.

The Start-Up Myth

Most people think they need a lot of money to get started in the stock market, but that’s simply not true.

I actually recommend starting small…even for people who have a large amount of capital to get started.

There was a lady who came to me recently, ready to start investing with her $300K savings. I said, “No way! We’ll fraction that to $30,000 and start on a smaller scale. Then, when we’re confident the strategy is working, we’ll build up, slowly.”

Let’s say you can start saving $100/week…

Instead of socking away that $100 in a savings account until you have $10K to invest, start investing NOW.

Find some safe stock that’s undervalued and purchase it with your $100. (If there’s nothing too undervalued then don’t buy anything, just wait for the next week.)

Next week, do the same thing: look for an undervalued stock and add it to your portfolio, using your next $100 installment.

…and keep repeating every week. Rinse and repeat.

This is a great way to build up a portfolio slowly and naturally. It’s a much better plan than having your money sit in a savings account for years, not doing anything.

When you play it safe (which is the only kind of investing I recommend) your investment account becomes your savings plan. You’re saving while building a portfolio!

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The Excited Day Trader Myth

We’ve all seen day traders where they stare at a screen, yelling and jumping, buying and selling frantically, all day long. Most people think that investing or trading in the stock market should be exciting.

No, it should not!

Trading and investing should be really boring. You want to make smart, low-risk investments, buy in at the right time, and then let the market take care of the rest.

If you want excitement with your money, go to the casino. You’ll have more fun there! You’ll lose money fast…but you’ll have more excitement.

You don’t need to yell at a screen all day long, buying and selling on things like five-minute charts. There’s no need to be a full-time trader to make excellent profits.

The Danger Myth

This myth is hard for me to understand, to be honest. Because most people think the stock market is a dangerous place.

If you don’t know what you’re doing, it is a very dangerous place definitely. Because then all you’re doing is taking tips from other people who probably don’t know what they’re doing, either. It’s basically following someone else who’s lost.

You can certainly lose a lot of money that way.

But if you’ve got an idea of what you’re doing…

If you’re following a systemized process of eliminating bad investments…

So you’re just choosing from the very best stocks…

And then buying at the right price and at the right time…

It’s really hard to lose money in the stock market. Especially if you’ve got a diversified portfolio, it’s really, really hard.

Stock investing done right is actually very safe. It’s only when you don’t know what you’re doing that it gets dangerous.

When it comes to the stock market, knowledge is power. Don’t let these myths keep you trapped or stop you from making smart financial decisions!