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  • Wall Street myths

    Wall Street myths

    In this article we're going to explore some age old myths about Wall Street. With this article I hope to dispel a lot of half truths and whole lies associated with the world of finance. Let's start:

    Wall Street steals all your money.

    There is no greater fear for red blooded Americans than losing money. More people fear losing money than dying. That’s why you have so many people who treat Wall Street like nothing more than a robber demanding money from them at gunpoint. We’ve all heard the stories that go something like “yeah my uncle’s neighbor’s brother was a day trader and lost everything.” Those stories are always more common than the guy who made a quarter million overnight. People focus on the negative. Why? Because it gives them an excuse to not try. An excuse to not get involved. Its an easy cop out. Wall Street does not take your money. Most people think when they hear about a person losing everything it happened in one fell swoop. It doesn't work that way. For you to lose all your money at once you would have to have all your money in one issue and that issue would have to go to zero fast enough for you not to be able to do anything about it. For example, a 100 dollar stock would have to go to 0 in a day. When was the last time that happened?

    It's gambling.

    One of the most common myths of wall street is that all the participants are just white collar gamblers. The myth obviously comes from the fact that traders and investors "bet" in order to make money but as with many tenets of Wall Street, the way we make our money is misunderstood. Other businesses don't get as bad a rap as ours. If you opened your own restaurant people would say you were taking a risk, not gambling. I can't exactly pinpoint why Wall Street gets such a bad rap but one thing I can tell you is that no seasoned trader would ever call his activity gambling.

    One of the most ironic parts about this myth is that the ones who call it gambling are usually the first in line to buy lottery tickets. They will pick random numbers and just hope those numbers get picked. How in the hell is that not gambling?

    Simply put, a gamble is risking money with no strategy or gameplan.

    Overnight riches

    This myth comes in many forms and probably casts the most negative light on the industry. From time to time the market goes through phases where it's easier than usual to make money. The 1920s had a period like this with the increased popularity of consumer credit. The 1990s had a period of “easy money” when tech stocks skyrocketed and day trading became easier with the advent of online trading and discount brokers. A lot of people get rich during these times and others inevitably want to do the same so the bandwagon traders hop on. People make money for a short period then markets correct and everything goes back to normal. The traders and investors who were around before the euphoric times usually keep on going and treat the fast money times like a bonus but the bandwagoners always fall hard.

    Often times I'll get people asking me to teach them about Wall Street which is a reasonable request and I’m happy to share my knowledge but what bothers me is how sometimes the questions are worded as such: “I wanna make some money so teach me a few things about Wall Street”. Statements like that show an outright disrespect for what I and other traders do and what we’ve been through. It trivializes the hours on end we spent reading, studying charts, finding the best method of trading, staying up all night, and just going through hell to get to where we are. There is a lot of money to be made on Wall Street and just like any other profession that pays a lot of money you’re going to get lots of people who just want to get rich quick. It ain’t gonna happen. Whenever you treat a serious endeavor with little to no respect you’re bound to lose. Respect the market and the market will show you a clear path to success.

    Everybody is either winning or losing all at once

    Whenever the general public hears about a down day or bear market on the news they think that everyone on wall street is losing money. That’s not true for two reasons:
    1. You don’t have to be long
    2. When money is lost someone makes it. A lot of people outside of Wall Street think if you lose money on Wall Street then the money just floated up into space. False. The money goes to another trader or investor's pocket. Plain and simple. That’s why you don’t have all winners or all losers at one time.

    Have to be good at math

    This myth was probably somewhat true at some point. Investors used to study fundamentals, balance sheets, debt to equity and so on. In other words, they crunched a lot of numbers. If you were a trader before the internet age then you crunched numbers too. You figured out moving averages, stochastics, and a bunch of other technical indicators. You had to figure out your own charts. These days a proficiency in mathematics doesn't equate to success on Wall Street. I personally use about a third grade level of addition, subtraction, multiplication, and division.

    My way is the best way

    This is a myth that almost every person dealing in the financial markets has been guilty of at some point. Long-term investors think their way is better than short-term day and swing traders. Fundamentalists think chart reading is useless. Technical traders think fundamentalists are wasting their time. Who’s right? Nobody is 100% right. On Wall Street, you find the method that works best for YOU. That’s what a lot of people don’t get. Just because you found a way that fits your personality that doesn’t mean it would work for the next guy. Take me for example. I’m a swing trader. I’ve tried long term investing and daytrading but swing trading works best for me. I would never disparage other methods of making money on Wall Street because each has its own merits and feasibility to individuals.

    The main theme I see with this myth is the “i make millions using this method and I’ve never heard of anyone making millions using your method”. People completely blind themselves to other methods for no reason. I’ll end this myth by giving you something to think about. Somewhere in the world, there is a long term investor who hasn’t made a penny in the past 10 years and at the same time, there is a day trader who has consistently made at least a million dollars a year over the past 5 years. We’re all here to make money so who cares how you do it as long as your account value grows.

    The stock market is easy

    You have to be a double moron to think the financial markets are in any way, shape, or form are easy. Financial markets have always attracted quick buck artists a.k.a. people looking to get rich quick. I've never understood how people could ever come to this conclusion. Its as if they really think they can come into the market, press a button, and make a million dollars overnight.

    Mark Minervini once expressed that his biggest pet peeve was when people ask him to just "show them how to make money in the stock market". He said that people would really expect to come to his house and learn everything about the stock market in one weekend. People think that way because they are stupid. There is no reason to sugarcoat it. THEY ARE STUPID. You wouldn't expect a brain surgeon to teach you how to do brain surgery in a weekend so don't expect it with the financial markets.

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    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

    Good KARMA and positive energy abound.

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  • #2
    "Everybody is either winning or losing all at once"

    I hate this one. You see it on the news and people think everybody has lost money. People think all the money just disappeared into thin air. When money is lost its also made by somebody


    • #3
      I like the have to be good at math one. There's some math involved but its not calculus.


      • #4
        Pretty good article


        • #5
          To be fair, my way is the best way