Broker Check

The 3 Wall Street Voices and 9 Myths – Part I

| April 28, 2022

Understanding the myths and ignoring the voices will make you better

Wall Street has three voices it wants you to listen to and nine myths it wants you to believe. They are designed to allow “The Street” to keep making money from you. Exposing them will help you be a better investor.

In today's volatile investment environment, you will hear three voices from The Street:

  • One is the hysterical shouting of the panic-stricken, telling you to cash in all your investments and keep your money in a sock under your bed.
  • A second is the comfortable pacification of the passive, urging you to wait out the long-haul with no changes to your portfolio.
  • A third voice: the persuasive promise of the get-rich-quick crowd, whispering secret formulas guaranteed to line your pockets with gold.

Either way, Wall Street gets a cut.

You need to go beyond the voices, and listen to reason that calms the panic, refutes passivity and debunks so-called secret formulas.

Nine Wall Street Myths (#1 – #3)

Here are three of the nine investment myths that Wall Street wants you to believe:

Investment Myth No. 1

Everyone should invest in the stock market. Always, never, everyone, no one...those are words that should raise red flags, particularly when applied to money. Is the stock market a time-tested and viable investment vehicle? Without question. Does it necessarily follow that everyone should invest in the stock market all of the time? By no means.

The fact is, no matter how much potential the market offers, it also has inherent risks. Those risks may be too great for certain individuals to either comprehend or accept. For them, investing in the stock market generates continual anxiety and fear, and a significant bear market could induce panic or hysteria. Living under constant tension offsets any possible monetary gain.

Investment Myth No. 2

The stock market will go up, up, up. Many people fall victim to the basic assumption that the stock market is guaranteed to grow, and that their net profits will expand. Sure, there may be some dips along the way, the argument goes, but nothing really serious. This is, indeed, a view that is quietly propounded by many financial institutions and asset managers.

Why? Because this belief encourages investors to increase their exposure to stocks and to take a passive investing approach. This belief is unfounded and often dangerously optimistic. Both bull and bear markets are regular parts of the stock market cycle. A fundamental law of investing is the uncertainty of the future: There are always a greater number of unknowns than knowns.

That doesn't mean that you should avoid risk altogether, because uncertainty creates opportunity. But it does mean that simply investing in the markets is not a guarantee of financial victory.

Investment Myth No. 3

No matter what happens in the market, stick it out. Suppose a grease fire started on your stove. You'd grab the pot lid and smother the flames. But suppose a lightning strike started a raging inferno in your home. You'd leave – quickly.

Likewise, good managers have a plan for both bull and bear markets. Slight downturns might be waited out. But if your plan doesn't include an exit strategy for serious stock problems, then it isn't a bona fide plan. Every major market in the world experienced a decline of 70% to 90% during the last century. Our stock market and others around the world will likely experience similar declines in the future.