(MONEY Magazine) – Investing has always been fertile ground for dubious generalizations. Let a stock-market bore corner you at a party, and you will inevitably get an earful of maxims and truisms. Some of these are of the fatuous ''buy low, sell high'' variety. But other conventional wisdom can actually be hazardous to your wealth. The problem is, as John Markese, research director of the American Association of Individual Investors, rightly notes: ''Most investing myths contain a grain of truth.'' But following any rule of thumb uncritically could be costly, since it may fail without warning. Here's the straight dope on 10 widely held misconceptions about investing:

MYTH 1 Blue chips are stocks you own for life. Buying the shares of financially strong companies that offer better than average growth prospects and holding them for 10 years or longer is a sensible strategy. But no one should put stocks in a drawer and forget about them. Some of the so-called Nifty Fifty -- shares of giant blue-chip companies popular with institutional investors in the early 1970s -- never recovered from the 1972-74 bear market when this group lost half its value on average. Xerox, for example, which traded as high as $171 a share (adjusted for subsequent splits) in 1972 dropped 70% over the next two years. Then, because competing Japanese copier makers were capturing Xerox's market, the stock never managed to make a major comeback; since 1974, Xerox has languished below $85 a share.

Some strategists warn that blue chips could be hit hard during this bear market. So far, leading blue chips with price/earnings ratios above 16 are down only 4% or so over the past year, while many smaller stocks have fallen 20% to 30%. ''The current bear market looks a lot like 1973-74 with small and medium-size stocks getting hit first,'' says chief investment officer David Katz of Matrix Asset Advisors, a money-management firm in New York City. ''But eventually, we will see the big popular stocks get knocked down as well.''

MYTH 2 Small investors who try to time the market usually wind up losing. This is true if by timing you mean moving all of your money in and out of stocks to try to catch short-term market swings. But it pays to manage your holdings actively, taking into account share-price levels and the general outlook for stocks. If the Dow is trading at an average P/E ratio of 15 or higher and has a dividend yield of less than 3% after a bull market lasting three years or longer, you would be foolish not to sell some of the stocks in which you have large profits and build up your cash reserves. By contrast, when stocks drop more than 20% from their highs -- as many have this year -- you should be looking for chances to add to your holdings. A study by Trinity Investment Management of Cambridge, Mass. shows that being on the sidelines when a bear market ends is one of the biggest causes of poor performance in stocks.

MYTH 3 An undervalued stock will be bid up to its true worth within a year or two. Many investors rely on a contrarian strategy: They buy out-of-favor shares that trade at below-average price/earnings ratios, or that appear cheap relative to the worth of a company's assets. Then they wait for other investors to recognize the stocks' true worth and bid up their prices. So far, so good. That's the basis of sound value investing. Many individuals, however, underestimate how long they might have to wait. From the beginning of 1987 through September 1990, for instance, the 20% of stocks in the S&P 500 index with the lowest P/E ratios produced no price gains at all, even though the average price of stocks in the S&P 500 rose 43% during that period. Looking ahead to 1991, contrarian investors may finally see some improvement in their results because low-P/E stocks typically shine in the aftermath of a market downturn. Following the 1974 bear market, for instance, such stocks gained 175% in price over the next two years, compared with 69% for the S&P 500. David Dreman, whose Dreman Value Management firm concentrates on undervalued stocks, suggests the following bargain choices: financially strong regional banks such as Barnett Banks (recently traded on the New York Stock Exchange at $20.50), with operations in Georgia and Florida and total assets , of $31 billion, and computer companies such as Compaq (NYSE, $53), with sales of $3.7 billion, and Hewlett-Packard (NYSE, $30), $13.3 billion in sales.

MYTH 4 Investors who buy stock in odd lots get killed on commissions. You usually do have to spend a little extra to buy an odd lot -- that is, typically less than 100 shares. For most issues you will pay an additional eighth of a point (12 1/2 cents) a share to compensate brokers for the inconvenience of trading a small amount of stock. Beyond that, brokers generally do not charge higher commissions for such trades, except in one case. A small odd lot of a stock priced below $20 may run up against the minimum commission of $35 to $50 at many brokerages. Even so, if you are buying shares that you plan to hold for three to five years, the overall effect of a slightly higher price will be tiny -- lowering your annual return by perhaps a tenth of a percentage point.

MYTH 5 You need at least $25,000 to buy individual stocks. You can greatly decrease the risk of owning stocks by dividing your money among industries that react to disparate economic conditions. Many individuals think that this requires a portfolio of $25,000 to $100,000 invested in two or three dozen stocks. In fact, though, you can put together a reasonably well-diversified portfolio for as little as $10,000 and get 75% of the benefit you would have by diversifying among a full 500 stocks. ''We counsel people who have portfolios smaller than $100,000 to concentrate on five well-diversified stocks and add to those positions as they get more money,'' says Ken Janke, president of the National Association of Investors Corp. -- a group that advises investment clubs as well as individual investors. If you don't have enough money to buy 100 shares of each of the stocks you want to include in your portfolio, consider buying in odd lots as discussed above.

MYTH 6 Foreign stocks are too tricky for most small investors. The shares of some 700 foreign companies trade in the U.S. in the form of American Depositary Receipts (ADRs), and 57 of the largest are listed on the New York Stock Exchange. Six others are listed on the American Stock Exchange, and 86 more leading foreign issues are traded over the counter in the computerized NASDAQ system. Small investors can buy and sell these shares as easily as U.S. issues. Moreover, information about those companies is readily available; many are followed by analysts at large U.S. brokerages.

MYTH 7 U.S. Government bonds are the safest investment you can make. It is out of the question that the U.S. Government or its agencies, such as the Government National Mortgage Association (Ginnie Mae), could ever default on debt obligations. But investors are mistaken to think that default is the biggest risk that bondholders face. Two other dangers are far greater: that rising interest rates could cause the prices of long-term bonds to fall and that inflation could erode the purchasing power of the bonds' principal. The size of a bond's price decline when rates rise depends on the issue's term to maturity. With a two-percentage-point rise in rates, a three-year Treasury will drop 5%, a 10-year bond 12% and a 30-year issue 18%. Though most analysts expect rates to fall in 1991, there is always a risk that they will be wrong. In addition, steady 4% to 5% annual inflation would erode the purchasing power of a 20-year bond's principal by as much as 65% by the time the bond matures. In fact, studies show that Treasury bond total returns have outpaced inflation in only 37 of the past 64 years.

MYTH 8 Zero-coupon bonds provide a predictable return. If you choose a bond that matures when you need a specific amount of money -- to pay college tuition, for example -- then a zero's return is indeed predictable. But if you buy a long-term zero and then decide to sell well before maturity for some reason, you may be in for a shock. The prices of such issues are about 60% more volatile than those of ordinary bonds that pay cash interest. If, for instance, you put $20,000 into a 20-year zero-coupon Treasury at the recent rate of 8.5% and rates jumped to 10.5% in late 1991, the price of your zero would fall by about 25%. You would therefore lose $5,000 if you suddenly needed money and had to sell.

MYTH 9 Mutual funds are the best way for small investors to buy bonds. If you want to invest in convertible issues or in municipals, it makes sense to go through a mutual fund. Analyzing individual bonds is difficult for you to handle alone, and you would need $25,000 to $50,000 for adequate diversification. But if you want to invest in Treasuries, where there is no risk of default, diversification and bond selection are inconsequential. ''Managers can do little to add to returns,'' says Charles Trzcinka, an associate professor of finance at the State University of New York at Buffalo who did a study on ! mutual fund fees for the Securities and Exchange Commission. By investing in bonds through a mutual fund, you would therefore end up paying annual management and operating expenses -- averaging 0.79% of assets for Treasury funds -- with little benefit. On a $10,000 investment, that would cost you $79 a year.

MYTH 10 Gold is the best hedge against inflation. Gold has been historically, but only when inflation was 9% or more and seemed likely to get worse, as it did in 1979-80. That's why gold peaked at $825 an ounce in January 1980. Since then, gold has fallen 55% even though inflation has boosted consumer prices by a total of 72% by ticking along at an average rate of 5% a year. Since most economists believe that annual inflation will average 5% or less during the 1990s, gold is unlikely to keep pace with those steady increases in consumer prices. In short, gold now looks like a mediocre investment at best.