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The Truth About Stock Markets

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If you are new to stock markets (or even experienced) let me tell you a fact – there is a lot of myth going around in the world in stock markets. People think if they invest in stock markets they will become extremely rich very fast. Well this is not the case. Money is there but stock markets is not a get quick rich scheme. You have to be patient with your investments. Making 20% per year is very much possible with your investments – but if you think you will double your money every year then you are going in the wrong direction.

Anyway there are a lot of myth (false belief) going on in stock markets in the whole world but people still believe these myth. In this article I will tell you about the truth of stock markets never told by anyone ever in the world. I am sure you may not agree to a lot of points in the article but the fact is this is what is happening but investors/traders do not believe even after reading so much about stock markets.

Truth 1: Stock Market Is A Business Not A Gateway To Make Money Easy

Fact is it is very easy to make money from the stock markets yet 99% of investors and traders lose a lot of money for years. When I say a lot of money it is not 10k or 20k, it is in lakhs and sometimes runs into crores. Sad but real truth of stock markets. If you are an experienced investor I am sure you have also lost some money not made in few years of investing.

Why this happens?

This happens because we enter the business of stock markets with high hopes and no education or research. I am sure the age of 30-35 is the age where most people enter the stock markets because this is the age where we earn well, save money and want to earn more – so the only way out is to try the stock market because this is the only business in the world where one can enter in a day with as little as 500 rs. This is the only business in the world where entry is easy so people enter this business with high hopes.

Please note that I am constantly using the word “business” with stock market. How many of us even know that when we open a trading / demat account we are entering into a business where high return and risk is involved? The media also says “Stock Market”, it never says “Stock Market Business”.

Your mindset itself will change when you start seeing Stock Market as a business not as a money spinning tool which you always keep thinking. Just one word if attached to stock markets will change our attitude towards stock markets. Read the following you will know what I mean:

“Stock Market” Is Different Than “Stock Market Business”.

Truth 2: 10% Per Month From Stock Markets Is Simply Not Possible

I have written about this many times in my first blog – click here to read – but I still keep getting calls for a strategy that makes 10-15% a month, every month. This call does not come from a novice trader but usually from a trader who has more than 10 years of experience and 10 lakh loss in stock markets.

Its is very easy to fool these kind of people by the tip providers especially in Indore. If you have picked up there call they promise 3000-4000 per day in just 20,000. This is 20% return in a day. A trader looking to make 10% or more per month will easily fall in this trap and pay for their service only to lose more money. Problem does not end here – they still believe there is some strategy or someone who can make 10% per month. Therefore I believe the fault lies with the tip providers and people who ask for tips and believe they can make 10% per month on tips. Hey even I am a victim of tip providers.

Truth 3: Someone Knows The Next Day Levels Of Stocks – Is A HUGE MYTH

This is the biggest myth going on among traders that there is someone who knows the levels of some stocks each day. From where they will fall (resistance) and from where they will rise (support). Resistance & support has been advertised by the media and some technical analysts in such a glamours way that people believe these people know resistance & support of all stocks – so make a lot of money. Reality is something else. These people say these things to advertise their tip proving services. Its unfortunate that even media and business channels give support and resistance levels of stocks without thinking that there are a lot of people who will follow them and lose money.

If you do not believe me – try to trade what tips are being told in any business channel. You will understand what I am saying is a fact. Warning: If you copy the tips given on TV please paper trade – do not enter with real money. There is high chance that you will lose money.

Truth 4: You Will Not Become A Good Investor or Rich By Taking Tips

After failing in equity intraday day trading most traders turn to taking tips thinking some genius is sitting there who knows enough about markets and will give them tips and make them very rich. They forget that Rs.2000-3000 per day on Rs. 50,000 is almost 100% return a month. 100% return a month is 1200% return a year. This kind of return will make someone richest person of the world in 5 years even if they start with Rs.10,000.00.

Here is the exact calculation:

Base amount: Rs.10,000.00
Annual Rate of Return: 1200%
Calculation period: 10 years

Balance in Demat account after 10 years: Rs. 1,378,584,918,490,000.00

Do you believe this is possible?


Truth 5: Positional Trading/Investing Is Better Than Intraday/Day Trading

Take a look at life of a day trader:

Do you want this kind of life?

Being active in stock markets is good, but being too active is bad. Day trading is very stressful. On top of that brokerage charges, STT, GST and other taxes may cause havoc in their trading profits. And if they lose these taxes increases their loses.

Add to it devoting lots of time in the active trading. How is it possible to do a full time job and do intraday trading. If you try to juggle both your job and intraday trading then rest assured you might make heavy loss in trading and may lose your job too if you get caught.

Its better to invest in good companies and wait for a few months/days for profits to come. Then book profit in 2 minutes and relax. Then research well and invest in another good company.

Truth 6: 25% a Year Is A Lot of Money

A lot of investors think that making 25% a year is very less as they are taking risk. But the fact is – its not less. Assuming you start with 5 Lakh and make 25% a year for next 10 years. Do you know how much you will own? Rs.4,656,612.87. This is more than 46 lakhs. Or in other words, your money will multiply by more than 9 times in 10 years. Compare this to fixed deposit – your money at 6.5% FD rate will get doubled in 11 years. So 25% a year is not less.

Truth 7: Technical Analysis Is A Must To Know To Make Money in Stock Markets – A Myth Again

Knowing technical analysis is good – nothing wrong with that, but everything is not technical analysis. I have chatted with many traders knowing technical analysis but I am yet to meet some one who is making more than 5% a month trading based on technical analysis. If technical analysis was so good then someone must have become Warren Buffett of technical analysis. But no one has become technical analysis giant like Warren Buffett. So its a huge myth that traders who know technical analysis make lots of money.

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