The truth behind 8 biggest investing myths

by Fidea Encarnacion,

Posted at Feb 09 2014 08:38 AM | Updated as of Feb 10 2014 05:45 PM

MANILA – Investors are known to follow a number of rules on buying shares or bonds, but what most don’t know is that some of these rules are actually not true, an expert said.

In an interview on ANC’s “On The Money,” Sun Life Investments Head of Equities Gerard Abad listed the top common myths and mistakes on investing.

While most of these are widely-accepted truths by regular investors, Abad said quite a number of these are actually not true and must be debunked.

MYTH 1. Only the rich can invest.

TRUTH: Investments are now not that costly, and you don’t have to pay a hefty amount to have your own shares or bonds.

“Previously, the thing is you need a thousand or even millions of pesos to be able to invest in stocks or bonds, but right now, there are a lot of alternative investment outlets where you can invest for as low as P5,000,”

MYTH 2. If someone can earn from an investment, then so can you.

TRUTH: One must do research first and study the conditions of the market before plunging in. According to Abad, businesses that work for some may not work for others. It’s a case to case basis.

“This is the typical herd mentality. Let me give you an example: The hype of the lechon manok, or the shawarma— it's [not] for everyone. Just because someone is earning from it doesn't mean that it's for everyone. You need to do a lot of research. You don't go to it just blindly. You have to look at the condition of the market.”

MYTH 3. Invest when the market is positive.

TRUTH: It’s better to buy stocks when the market condition is bad. Abad shares that it’s best to enter when there is a sharp correction, and best to exit when speculations start that the market can still go up.

“Buy when the market condition is bad… it's usually the best time to enter the stock market when there is a sharp correction. Usually, when everything is positive [and] they [are] saying that it can still go up, it is actually the best time to exit the market.”

MYTH 4. Trading in the stock market is investing.

TRUTH: Trading and investing are two different things.

“Actually, when you say investing, you participate in the growth of the company. However, when you say you're trading, you're actually just looking at the price movements. So, when you do investing, you want to participate or to ride a long-term growth of a specific company. Unlike in trading, when you just play around in the volatility of prices…you can lose more in the process.”

MYTH 5. Real estate is the best investment.

TRUTH: A lot of factors including the economy, annual taxes, and property dues play a big part in how real estate properties are priced.

“Many people think that real estate is the safest and best investment. However, if you look at the movement of real estate prices, they actually also fluctuate. When the economy is going great, property prices goes up, and when there is a scare in the market, real estate prices go down. Property also depreciates with time. You can expect additional cost like paying annual taxes, paying dues..."

MYTH 6. All expensive purchases can be an investment.

TRUTH: For a purchase to be an investment, you have to profit from it.

“People justify buying expensive things like paintings, jewelery as an investment. It's more of a want than a real investment. When you say investment, you need to profit from it.”

MYTH 7. If you hold a variety of stocks, it's diversifying.

TRUTH: Diversifying is more on investing in different outlets or companies, and not particularly holding multiple stocks.

“Diversification is really not buying multiple stocks. Diversifying basically involves investing in multiple investment outlets.”

MYTH 8. Any investment poses the same risk for everyone.

TRUTH: It depends on the background of the person investing.

“Risk very much depends on one's own profile,” Abad said. It is dependent also on how much the investor can shell out, a factor which varies from one person to another.

When asked if what should be the mindset of all budding and experienced investors alike, Abad said that it is important to diversify and do research.

“You don't put your eggs in one basket. Don't just invest in one stock. Spread your risk, do you research, [and] look at companies that you feel will perform in this type of environment."