Investment Myths Busted

[millionairemind]

Many of us have been brainwashed and hoodwinked by the FUN industry and the media on investment myths that have become so common place that they are never questioned again.

It could be a book that was written by some academics (like Random Walk Down Wall Street) and some other authors who want to make money off someone else's fame (think WB and the books written about him).

I would like this thread to be a discussion between the forummers here on the investment myths that we have all subscribed to when we were novices (and maybe still hold dear) so that we can bust it once and for all with charts and logical reasoning.

Here are a list of investment myths and I will be going into detail one by one in the coming days to debunk everyone of them. Why am I doing this?? It is because I once subscribed to this "investment rules (aka bullshit)" and held it so strongly that I lost lots of money in the earlier years. I hope to help newbies avoid these painful lessons...

If you think I am sprouting rubbish here (often am ), feel free to counter these arguments so that we can both learn from it.

I am NO expert in the mkt. I am just a student of the mkt and really enjoying it. Everytime I lost money in the market, I learnt something about the market and about myself.

Here are a few myths that come to the top of my head.

1. You cannot time the market
2. It is time in the market, not timing the market that counts
3. Buy and hold, the market always comes back up (the mkt might be, but your stocks most likely will not )
4. Diversification is good
5. Invest for the long term.. you will come out ahead. This one is similar to Stocks always rise in the long term. Don't try and time the market; what you need is time IN the market ! Just buy and hold
6. You can't beat the market
7. You must be in the market all the time.. if you miss the biggest up days.. your returns will be so much lower (blah blah blah)
8. There is a PE where the stock will not go any lower. FA is the only way to invest. Cheap stocks do get cheaper. (Nothing against FA here but it does not tell you about mkt sentiments)
9. The unit trust managers know more than you (ya right )
10. You can safely trust the stock market to outperform over 3 decades.
11. Dollar-cost averaging boosts returns
12. Value and equity income funds will protect you in a downturn.

Feel free to add to the list so that we can start discussing and debunking them one by one in the coming future

[kennynah]

mm : thanks for this thread...i look forward to reading more of this from you...

[LenaHuat]

I'll take point (7)

7. You must be in the market all the time.. if you miss the biggest up days.. your returns will be so much lower (blah blah blah)

Firstly, I would rather say "You must track the broad market all the time". Protecting and growing one's portfolio is hardwork. It's a daily activity. I spend 2 hours everyday tracking any and every news that may affect my portfolios. That's alot of time for an otiose houseminder.

Secondly, remember the first. The hardwork includes networking and chatting others up here

Thirdly, no1 really know when the biggest up days will occur. But I can spot a trend when I see one. Failing to act (be it taking profits or cutting losses) will cost one good returns.

[Musicwhiz]

Well I don't agree with everything on the list, but then I'm considered a novice at investing so perhaps I have a lot to learn.

All I will say is each of us have our own beliefs and styles which can be contrasting; so let's learn to respect that there's no right or wrong as long as one is able to generate consistent returns.

Cheers,
Musicwhiz

[kennynah]

MWhz : always good to see your post.

certainly....all that is required in this forum is to disagree respectfully...

may we know, which point/s above do u particularly not agree?

[Musicwhiz]

Well mainly 1 and 2, as I do not believe in timing the markets. But I say this reluctantly, of course, as I know many people on the forum believe this to be consistently possible. Still, I stand by my view.

As for point 6, investing is not about beating the market, so forget what Fund Managers say. It's about getting a consistent return on your investment.

The rest of the points are myths, I agree. Buy and Hold blindly does NOT work - I had already categorically stated this on my blog.

[ishak]

I am a novice too.

In a basketball training the coach will scream at you, "Don't kick the ball, pick up the ball".
In a soccer training session, the coach will shout to you, "Kick the ball, don't pick it up".

It all depends on context, environment and the individual.

[HengHeng]

Here are a few myths that come to the top of my head.

1. You cannot time the market <=== you can doesn't mean others can. Just like some people can swim some others can't no matter how hard they try.

2. It is time in the market, not timing the market that counts <=== Similar to point 1

3. Buy and hold, the market always comes back up (the mkt might be, but your stocks most likely will not ) <-= if one is worried buy index funds.

4. Diversification is good <-== Diverification is good , frankly speaking i would try to hedge on industries which might be completely opposite. I always diversify my work to others and try to loaf whenever possible.

5. Invest for the long term.. you will come out ahead. This one is similar to Stocks always rise in the long term. Don't try and time the market; what you need is time IN the market ! Just buy and hold ... <==== Well if good stock buy liao long term still good buy lah .. .look at coke .. WB bought a pretty high price when he bought them as compared to the average then.


6. You can't beat the market <-=== market forces i don't think i beat them by power them away but i can earn money from learning which direction market forces are moving towards. I cannot win them but i always try to join them.

7. You must be in the market all the time.. if you miss the biggest up days.. your returns will be so much lower (blah blah blah)
<=== Erm it really depends on what u mean buy "in" the market. If you mean reading up on news and paying attention to prices... i think it has to do with feel .. some people needs to be in sync with the markets .. some don't .. so it is pretty personal and completely no scientific so cannot say this is a myth.

8. There is a PE where the stock will not go any lower. FA is the only way to invest. Cheap stocks do get cheaper. (Nothing against FA here but it does not tell you about mkt sentiments) <-=== personally i never considered T.A important in stock investments. Personally this is how i feel. T.A is just about general consensus on prices .. doesn't really reflect the actual "value" of how one prices a stock.


9. The unit trust managers know more than you (ya right ) <=== this one i agree .. at least to most of them. But there are many brillant ones .. from templeton ... they are smarter than me .. just only because the rules of a unit trust is to be vest at a certain percentage at all times.. very different from personal investors .. so even if they know it is stupid to buy they cannot do anything... they can only choose those stocks that they think must recover more when it recover .. and not keep cash and wait for it to crash.


10. You can safely trust the stock market to outperform over 3 decades. --- > macdonalds , coke etc etc ... we can always find some gems but it takes skills to look for one.

11. Dollar-cost averaging boosts returns --> Erm given that if one isn't able to time the markets the next best thing is just wack at all times and the returns would be better off then buying high and selling them low.

12. Value and equity income funds will protect you in a downturn. <--- really depends .. i would look into bond funds in a downturn epecially those who are holding pretty high positions in "safe" bonds. Their returns are certainly better than investing in the worse hit sectors in stocks i mean before u know what is going on..at the begining of the bear .. not when u know what is going on.



I know for sure i still far from where my idol's are .. JL and Soros .. but i will try my best lol .. am still learning from the sifus here .. you guys certaintly know far more than me. ... everyday spent here would increase my knowledge more than reading the market analysis reports. .

[kennynah]

Well mainly 1 and 2, as I do not believe in timing the markets. But I say this reluctantly, of course, as I know many people on the forum believe this to be consistently possible. Still, I stand by my view.

As for point 6, investing is not about beating the market, so forget what Fund Managers say. It's about getting a consistent return on your investment.

The rest of the points are myths, I agree. Buy and Hold blindly does NOT work - I had already categorically stated this on my blog.

Mwhz : thanks for this candid response.

No one will shoot anyone's views down here at huatopedia...at least, we surely hope it wont happen here, without a ton of bricks raining down on that person...and depending on the severity of the tone, may face further repercussions.

i tend to agree with ishak that it all depends on context of trade....you maybe surprised that traders will employ different techniques depending on a slew of factors...such as duration of the trade, the intention of the trade(i may be confusing you here, i am aware), etc...

and finally, i am in sync with you that buying and holding blindly does not work most times...

[winston]

Hi MW,

We are here to challenge each other. As long as we do it in a civilized manner with no personal attacks, we should come out ahead at the end of the day.

Take care,
Winston