30 Most Dangerous Myths about Money & Investing

There is an awful lot of bad advice out there when it comes to investing in stock markets.

Like rumours, these myths get told and retold as if they were true. They spread like wildfire even though they are flat out wrong.

Some of these myths are just plain dumb, some are deceptive…but almost all are downright dangerous!

It’s time you know what these dangerous myths are, so that you are in a better position to side-step them.

So let’s get started right here, right now!

1. This time it’s different.
You heard it last time about the Second Board of KLSE in 1996, didn’t you?

2. If it’s on radio and this (popular investment blogger), it must be right.
You think their main aim is to help you make money?

3. Let me buy before the stock moves even higher.
Greed isn’t good in investing. It never was.

4. I won’t sell till I get my capital back.
It’s your ego that’s doing the talking here. There’s no point is plugging holes in a leaky boat.

5. I’m sure this is a turnaround story, so I’m willing to put all my money on it.
Turnarounds seldom turn around.

6. This stock is already down 90%! How much more can it fall?

A stock that dropped from RM10 to RM2 first fell 80%, and then another 80%. I know there are many stocks behaving like that in Bursa. Please read the link here and see how much their prices have dropped from their highs; KNM, CSL, Hibiscus, Not-so-Smartag, AsiaMedia, London Biscuits, MP Corp:

http://klse.i3investor.com/blogs/kcchongnz/45373.jsp

7. In the long term, everyone is dead.
That’s true, but if you play for the short term, you can die of shock even earlier.

8. You need to be a genius to make money from stock markets.
Of course, you don’t need to be a genius to make money from stock markets. You need to have a proper mind set, learn some basic investing principles and be good at reading financial statements. If you want to have a little advantage, try learn valuations.

9. I hate stocks. I’m fine with the safety of fixed deposits.
With inflation running at 6%, and FD returns at 4%, you know where you’ll end up in the long term, don’t you? Do you know what is “Real” return?

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”  - Robert G. Allen

10. I’m too young to invest.
What, no one ever told you about the power of compounding?

11. I’m too old to invest.
It’s always better late than never. Even if you’re old enough, you’re still alive and thus need more and more money to maintain your living standard in the future. Do you know how old you will live to? Do you have enough money to live until then?

12. I’m already earning enough.
So you want to continue to work forever for money until you drop dead? Why not let your money also work for you and you work less when you grow older, and spend more time doing things you like?

13. My remisier is my friend. He knows what’s right for me.
$#&%!@

14. Investing the way fund managers do is the smartest thing to do for small investors.
Almost 80% of mutual fund schemes have performed poorly over the past five years. Want to know why? Please read here:

http://klse.i3investor.com/blogs/kcchongnz/45121.jsp

15. IPO = Fast money.
Think CSL, Ideal Jacob, Smartag etc. I am sure you can name a lot more IPOs from Bursa which subscribers almost lost everything.

16. Stocks are always best for the long term.
Ask some old time investors about their experience who’ve dabbled in the Second Board in mid 1990s and the internet stocks in 2000. Stocks are best for the long term ‘only’ when you buy good stocks at the right prices. To do that you must know how to read financial statements and a little valuations.

17. Investing is risky.

Not investing is the biggest risk as inflation erodes the real value of your money.

18. I’m sure this stock will double. Let’s borrow some money to buy.
Debt can kill. Please read the link below:

http://klse.i3investor.com/blogs/kcchongnz/44344.jsp

19. Why save now? The future will take care of itself.
Look at your son or daughter and try saying this again. Want to estimate how much you need for a comfortable retirement? Are you sure your children will take care of you when you are old and have no more money? Please read here:

http://klse.i3investor.com/blogs/kcchongnz/49384.jsp

20. No one can pick the right stocks effectively.
If you have some brains, some time, and are willing to put in the effort, you can do it. Please read here:

http://klse.i3investor.com/servlets/pfs/21089.jsp

And here:

http://klse.i3investor.com/servlets/pfs/13147.jsp

21. It is skill with numbers that makes a money expert.
Skill with numbers certainly help. But it can also make you overconfident. And overconfidence and investing have never been good companions.

22. You can never go wrong when you invest like others.
The problem with the rat race is that even if you win, you’re still a rat!

23. Stock market is a casino.

If you think the stock market is a casino, you will be a loser in the long run. And if you don’t, you’ll be a winner. It’s entirely up to you. Are you investing or are you speculating? What skills do you need in investing?

24. It’s easy to time the market.
When did you do it right the last time? I know you count every time you win, but did you count when you lost?

25. Large cap stocks = Safe stocks.
Enron…anyone?

26. I’ll start saving and investing when I have enough money.
Have you ever thought you had enough money?

27. High risk = High return.
Good stocks = Low risk = High return. Bad stocks = High risk = Permanent loss of capital.

Most investors don’t read financial statements? So why should I?
Now you know why 99% of investors don’t succeed.

29. To grow my wealth, I have to diversify.
Concentrate (in a few investments) to grow your wealth. Diversify to preserve it. Please read here:

http://klse.i3investor.com/blogs/kcchongnz/48946.jsp

30. Speculation is fun. I made a lot of money from it over the past few months.
Smoking is fun for those who do it. But it kills if you do it for long. The problem is most punters brag about how much money they made, but always conveniently forget about how much they have lost.

Now what to do?
It’s good you asked this! But what do you think?

You see, success in a free country like ours is simple. Get an education, work hard, and learn to save and invest wisely. Anyone can do it. And so can you. But what you really need to succeed as an investor is your own independent thinking, and willingness to learn.

Remember, you alone are the most capable person alive to manage your money. It’s high time you start believing this. It’s high time you start making your own investment decisions, and take control of your financial destiny.

Don’t worry if the magnitude of the effort bothers you. As the famous Irish poet Oscar Wilde once said, “The final mystery is oneself.”

So, unravel the mystery that is ‘you’. Be self-aware. Know about your strengths and weaknesses. Know whether you are willing to take the risk, and understand the risk, of investing in the stock markets. And if you know all this, you’ll think, you’ll invest, and you’ll win.

Happy and safe investing!

KC Chong (30/4/14)