Investing in the Stock Market is not a rocket science. Yet, achieving success is not as simple as using rigid rules / guidelines.

Some of these commonly believed guidelines do not always hold true.

1.  Stocks with PBV less than 1(one) will eventually climb back up.

Not necessary, for several reasons:

• The intangible asset (e.g. goodwill) is overvalued. For instance, a blue chip tech Stock had to devalue its intangible assets several times since IPO listing.
• The sector is having a downturn, e.g. property sector. There could be liquidity issues with paying down their debts, leading to potentially selling down their assets at much cheaper price.

2.  Growth Stocks command higher PER than Defensive Stocks.

Growth Stocks that keep on burning cash with no end in sight is at high risk of delisting or business closure.

3.  It is safer to invest in Mutual Funds than Self-managed Stock Portfolio.

It appears that many Mutual Funds under-performed the IHSG index in 2023. Also in a volatile market, it is faster to sell off (take profit or cut loss) a self-managed stock.

4.  High dividend Stocks are secure for long term, the dividends will eventually break-even the floating loss incurred.

No Company can guarantee that payable dividends will be consistent for years. If a Company is having a downturn, its profit and dividend will be lower. The dividends accumulated may never fully compensate the stock price losses.

5.  Market Maker and Big Funds are always the winner.

Maybe, but quite often they are stuck in the Stocks that are not liquid enough. The past 2 years have seen significant drop in daily transaction value, making it trickier for them to exit their position. 

6.  High risk, high returns.

During downturns, high-risk Stocks tend to dive deeper than low-risk Stocks. High DER, negative PER Stocks won’t produce high returns. Instead, negative returns.

7.  Buy on dips

There is usually a strong reason why a Stock price dives. Often, the dip does not stop there. It dips even further (for months or years) until it stops for worse reasons, i.e. either suspended, bottom ‘50’, Full Call Auction, or delisting.

8.  Smart Investors do not diversify as much as other Investors.

It depends how an Investor see the market at any time. Concentrating on only a small number of Stocks require conviction. If an Investor does not see any ‘good stock’ with an acceptable ‘undervalued price’, he / she may diversify the stock portfolio (or keep the cash) until a long-awaited opportunity comes up.

Disclaimer: NOT FINANCIAL / INVESTMENT ADVICE. This article is of writer’s personal opinion. Any information contained here is for education and informational purpose only. Readers should seek other sources or professional advice for further clarification where deemed necessary.