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What you don't know CAN hurt you - traditional myths about investing exposed...

Below are some startling truths about some commonly held investing beliefs:

1. "Buy and hold" is the way to make money in the long run - Even Warren Buffet lost $10 billion in 2001. Sure he still made a lot more from investing along the way, but let's face it - most people aren't expert stock pickers.

Every now and then, I hear something like, "If you had bought Microsoft 20 years ago...". Well, back then who would have known that Microsoft would have grown so much. Plus the growth that the US economy experienced in the 80's and 90's may never occur again.

The markets are always changing - what worked so well before will only get you in trouble now. Even good securities get sold off periodically in waves of fear and panic.

2. Short-term trading is risky and unprofitable - It is true that a large majority of short-term and day traders lose money in the markets. However, with a solid trading system and strict discipline, outstanding results are achievable. There are people out there who make a living trading short-term. With the right tools and knowledge, short-term trading is actually safer than buy and hold strategies.

3. Options trading is risky - Around 90% of options traders lose money. However, if used appropriately, options trading can actually be a safer long-term trading device than buying the stock outright. Educate yourself on this subject before you attempt options trading, as it is dangerous for beginners.

4. Short selling is risky since the overall market trend is upwards - Sure the economy and overall market have grown over that past few decades, but many companies have also come and gone in that time as well. Shorting the right stocks can prove to be very profitable, especially since on average, stocks fall quicker than they rise.

Short selling also provides a hedge against the unpredictable market movement, i.e., your short positions go down more during market declines than your long positions. And just because the market has gone up overall doesn't mean that we can assume that it always will. A smart trader takes positions on both sides of the fence.

5. Using margin is risky and not a good idea - Using margin (borrowing the broker's money to buy securities) can get people in trouble if done recklessly. However, margin can be used as leverage, if you have an effective trading system that regulates losses. Margin trading is not recommended for beginners and undisciplined speculators.

6. It is impossible to determine which direction a stock price is going - Well, this one is actually true to a certain extent, but good technical analysis gives day traders and swing traders a better guess. However, there is no way to know with 100% certainty which way a stock will go. Technical analysis is the study of mass psychology - learn this form of analysis to determine when buyers and sellers are gaining the edge.

7. If I listen to my broker, I can make money in stocks - A common misconception is that stock brokers are experts in stock picking. The truth, however, is that most are not. Think about it - if a brokers could pick stocks that were about to soar, would they be working 8am-5pm in a salaried job answering your questions?

The average mutual fund manager can't even beat the S&P 500. The people who are most knowledgable and able to give investors the best advice are often self-employed traders who have no interest in giving out such advice.

8. If I just dollar cost average my stock portfolio, I'll make money - Dollar cost averaging is a fairly good long-term investing strategy, considering its simplicity. If a stock trends up or fluctuates between highs and lows, then you will end up buying more shares when the price is low. However, there is one fundamental flaw in dollar cost averaging - and that is it assumes that the general price direction is upwards.

If a stock is trending downwards, then dollar cost averaging will only lose you money. Just think, what if you had dollar cost averaged Enron or Kmart. Dollar cost averaging can be disasterous in bear markets, as evidenced by the many ruined 401K's in the past couple years.

9. Investment advisories will help me make money in stocks - A warning about investment advisories - I have found that very few of them are any good. Even a lot of the short-term advisories get in and out of trades too quickly only to obtain a meager 1-2% profit that get eaten away by commissions anyway. If an advisory does not show you their entire win-loss record or offer a free trial, then be wary.