10 investing myths that simply won't die
Remember the scene in “Jurassic Park” where the guy who was so sure a T-Rex couldn’t see him if he held still ends up getting eaten? Later in the book, some naïf asks what killed the man. The wry answer: “He was misinformed.”
When it comes to investing, misinformation can be very costly and it comes in many forms, including phony business rumours to spur stock activity, bogus quotes attributed to public figures, vengeful flames against companies from disgruntled customers or employees, and so on.
And sometimes the problem lies in commonly held beliefs that simply don’t hold water even though they’re repeated frequently, particularly when markets get choppy, writes Brent Arends in this weekend’s Wall Street Journal.
He’s come up with several aphorisms you can expect to hear over and over again, even though most are based on shaky premises. One favourite: Stocks, on average, should deliver about 10% a year.
According to about 200 years of data filtered to reduce the influence of bubbles and busts, as calculated by economist and historian Peter Bernstein, U.S. stocks have returned an average of close to double digits.
But a large part of that was due to inflation. And the balance of those stated returns may not be that reliable either, given the spotty data at play. Instead, many analysts suggest that 5% may be more typical.
And stocks only produce average returns if you buy them at average valuations, Arends points out. If you buy them when they're expensive, you do a lot worse.
Here’s his list of stock market myths that call for closer scrutiny.
Sound familiar? Any others you’d care to add from your own experience?By Gordon Powers, MSN Money