Mythbusters: Busting lies about the sharemarket

<h1>Mythbusters: Busting lies about the sharemarket</h1>Author: <a title="julialee" href="http://www.articlesbase.com/authors/julialee/287770.htm">julialee</a> The truth is that there is no rule that says share prices will eventually go up. Myth 2: High risk = high return High risk does NOT equal high return. High risk DOES equal an expectation of high return. The key word is 'expectation'. It does not mean that taking a high risk will result in high return. What it does mean is that when you take more risk you expect more return. Whether or not that expectation will be fulfilled is another thing altogether. Myth 3: Diversification helps you make money Diversification is not about making money. It's about reducing risk. If you wanted to maximise your returns, you would not diversify. You would simply pick the one company that would make you the most money and put all of your money in that one company. The problem with this is that no-one has a crystal ball and knows which stock is going to be the best gainer. So while diversification does water down your returns, the reason why investors do it is to reduce their risk. To reduce risk, the secret is to choose stocks that do not move together. Myth 4: Past performance is a good guide for the future The market tends to move in cycles like the economy. If you make your investing decisions based on the what has happened in the past, you are not trying to identify where we are in the cycle which can be more crucial. For example, when the economy looks like it is slowing down, defensive stocks tend to do better than the market. And when the economy does well, or grows, then growth stocks are in favour. Mythbusting All in all, mythbusting is about understanding the sharemarket. There are many, many myths in the market but the key to making money is about: •    understanding the sharemarket •    understanding the businesses that you invest in and •    understanding yourself. Happy investing!About the Author: Julia Lee is an Equities Analyst for <a href="https://<a href="http://www.belldirect.com.au/">online" target="_blank">www.belldirect.com.au/">online</a> share trading</a> platform Bell Direct. Julia provides information on <a href="https://<a href="http://www.belldirect.com.au/">share" target="_blank">www.belldirect.com.au/">share</a> trading</a> and <a href="https://<a href="http://www.belldirect.com.au/">online" target="_blank">www.belldirect.com.au/">online</a> trading</a> for frequent traders and investors.Article Source: <a href="http://www.articlesbase.com/">ArticlesBase.com</a> - <a href="http://www.articlesbase.com/business-ideas-articles/mythbusters-busting-lies-about-the-sharemarket-1461482.html" title="Mythbusters: Busting lies about the sharemarket">Mythbusters: Busting lies about the sharemarket</a>

The truth is that there is no rule that says share prices will eventually go up.

Myth 2: High risk = high return

High risk does NOT equal high return.

High risk DOES equal an expectation of high return. The key word is 'expectation'.

It does not mean that taking a high risk will result in high return. What it does mean is that when you take more risk you expect more return.

Whether or not that expectation will be fulfilled is another thing altogether.

Myth 3: Diversification helps you make money

Diversification is not about making money. It's about reducing risk.

If you wanted to maximise your returns, you would not diversify. You would simply pick the one company that would make you the most money and put all of your money in that one company.

The problem with this is that no-one has a crystal ball and knows which stock is going to be the best gainer.

So while diversification does water down your returns, the reason why investors do it is to reduce their risk.

To reduce risk, the secret is to choose stocks that do not move together.

Myth 4: Past performance is a good guide for the future

The market tends to move in cycles like the economy. If you make your investing decisions based on the what has happened in the past, you are not trying to identify where we are in the cycle which can be more crucial.

For example, when the economy looks like it is slowing down, defensive stocks tend to do better than the market. And when the economy does well, or grows, then growth stocks are in favour.

Mythbusting
All in all, mythbusting is about understanding the sharemarket. There are many, many myths in the market but the key to making money is about:
•   understanding the sharemarket
•   understanding the businesses that you invest in and
•   understanding yourself.
Happy investing!

Julia Lee is an Equities Analyst for online" target="_blank">www.belldirect.com.au/">online share trading platform Bell Direct. Julia provides information on share" target="_blank">www.belldirect.com.au/">share trading and online" target="_blank">www.belldirect.com.au/">online trading for frequent traders and investors.

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