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Market Myths - Essay Example
Investopedia (2002, pg. 1) claims that, "When fiascos like the Enron bankruptcy,auditing scandals and analysts' conflict of interest occur, investor confidence can beat an all-time low. Many investors are wonder whether or not investing in stocks is worth all the hassle…
Myth Number One is that some people equate investing in the stock market to gambling with their money. As a result of this fallacy, a significant number of individuals avoid the stock market. An understanding of the reasoning behind purchasing stocks needs to be well-known in order for an individual to understand how investing in them is different from gambling. It is important to remember that a share of stock represents partial ownership in a company, and it gives the person who owns the stock some of the profits that the company makes and allows that individual to share assets (Investopedia, 2008, pg. 1).
"Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company. In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company" (Investopedia, 2008, pg. 1).
It is a rather daunting task to determine the value of a company at any given point. The Random Walk Theory applies, and this theory states that "there are so many variables involved that the short-term price movements appear to be random (Investopedia, 2008, pg. 1). ...