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Five common misperceptions about investing in the stock market, debunked

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It may be time to re-think what you thought

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Occasionally I get an opportunity to make a presentation promoting my book. The theme of my 30- to 45-minute presentation is that most stock investing perceptions are actually misperceptions. Following are five common perceptions, which I feel are actually misperceptions.


Related: Fear is easier to market than facts

1. You have to watch it like a hawk

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No you don’t, if you buy the right kind of companies. I bought shares of Bank of Nova Scotia in 1992 for $5.59 per share. I have collected about seven times my original investment back in dividends, and the shares now trade for about $70. How much watching like a hawk did that take? I grant that this may be an unusually long holding period but it isn’t the only company that I have owned for over 15 years, and my overall annual portfolio turnover is usually just around five to 10 per cent. Some of the turnover stems from corporate takeovers. 


Related: Investing in speculations: an oxymoron

2. The market is risky

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There are risky, speculative stocks, but overall the market is not risky. Every bear market has given way to a new bull. After the 2008-09 financial crises I was back to my previous high values within three to four years, and today I am about two to three times my 2007 levels. The market however, is volatile. Risk and volatility are commonly perceived to be synonymous but they are completely separate entities. Understanding this will significantly enhance investing returns.

If you don’t believe me, this is what Warren Buffett has to say on the topic: “Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments — far riskier investments — than widely-diversified stock portfolios that are bought over time… That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk.” (From an article written by Dhirendra Kumar, April 28, 2016).


Related: Is market level relevant?

3. You have to be an expert

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I might be considered an expert in my field of agriculture, although many acquaintances would even disagree with that! I have never worked in the field of finance. Yet my success and returns rival and exceed most experts. There are advantages to being a smaller investor, like you aren’t going to get fired for making a mistake. Fund managers often follow the crowd because sticking their neck out and getting it wrong can cost them their jobs. However, with investing, avoiding the crowds will lead to greater success.

Related: Why cash flow is king

4. You have to be able to forecast the market

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Statistics show that less than half of predictions turn out correctly. Nobody has been able to regularly call changes in short term market direction. Best to simply understand that the market is volatile (not risky) and that average annual returns for the past century have been about 10 per cent.

Related: Sorting through the mumbo jumbo of financial investments

5. Market investing is just for the wealthy

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I started my kids investing their savings in stocks when they were 13 and 16 years of age. Our youngest son had the princely sum of $1,923 and our oldest was much wealthier with $4,933. The annual returns of my youngest son have been 10.1, 7.1, 5.2, 8.7, 18.5, 11.1, 18.2, and 11.3 per cent. At 22 years of age, he now has a TFSA worth over $30,000, based on this modest start and regular small contributions. You have to be 18 to start a TFSA so these accounts were started as in-trust accounts, then converted to TFSAs when they reached 18. Our oldest son has done even better, and enjoyed investing so much he decided to take finance in university. Online investing has brought the cost down immensely, making small transactions possible. It is easy to start a viable portfolio with $2,000. 


If your group would like to hear my full presentation, please email me at [email protected]

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