Stock Markets: The Castle in the Air vs The Firm Foundation Theory

For example I immediately bought Disney, Apple, and, Amazon before anything else, due to the success I knew each of these companies have had in the past. After running out of companies I knew had stock on the exchange, I started doing research on stocks I might want to purchase. This was especially necessary for mutual funds, which prior to starting the stock market game I had very little to no knowledge about. I found that in the long run, the stocks that I had the most success with were stocks that I had had some previous exposure to. Amazon especially was a great success.

In the beginning, there was no real stock market. However stock exchanges did take place in smaller groups and corporations. This all took place during the 1700's where stocks were already around for a long time before that but it wasn't really popular in the United States. Stocks originally started as auctions where traders called out names of companies and the shares available. There was a auction that took place and the shares went to the highest bidders.

A firm’s intrinsic value refers to the true worth of stock in that firm which is calculated on return data and accurate risks. On the other hand, a firm’s current stock price talks about its market price as a whole as perceived by an

| The hypothesis that market prices reflect all publicly available information is called efficiency in the:Answer

These changes in prices imply the power of growth rate’s assumption over stock price because “It was growth that drew attention to the brand. It was growth that propelled the stock offering. It was growth that drove the stock price to ever greater heights.” When the growth rate is expected to increase significantly, value of the firm is increased tremendously and so is its stock price. Both the enterprise value of the firm and its stock price change in the same direction with the change in growth rate estimates.

You can earn more money by investing in bonds, stocks, and mutual funds. I was playing The Stock Market Game with my class at school and learned a lot about choosing different kinds of investments. First, as you choose where to invest your money, you have to be careful not to put all your eggs in one basket. Investing money can be very risky. For example, lets say you invest all your savings in one stock, bond or mutual fund and it’s unsuccessful you could lose all your money. You lose time as well. A good idea is to decide how much money you want to put into each invest. Consider how much risk you can afford to take.

| Attempt made to analyse a financial issue incorporating discipline knowledge and theory, but only minimal understanding of the issue is evident; Analysis addresses some aspects of the issue, but key elements are not

This concept impacted Warren Buffett by having the right mental attitude towards the market fluctuations that will conduct the most success. He states that Mr. Market is there to guide you not serve you (Farnam Street). It is your choice to ignore him or to take advantage of what he has to offer. The concept impacted the strategies of Berkshire Hathaway by achieving the companies investment success by having good investment judgement along with insulate Mr. Market’s behavior (Farnam

The valuation process, in this case, requires us to estimate the short-run non-constant growth rate and predict future dividends. Then, we must estimate a constant long-term growth rate at which the firm is expected to grow. Generally, we assume that after a certain point of time, all firms begin to grow at a rather constant rate. Of course, the difficulty in this framework is estimating the short-term growth rate, how long the short-term growth will hold, and the long-term growth rate.

In this rather concise chapter the author states the gist for the next few pages which is his perception of free trade in our economy. His perception on free trade is that it “makes it possible for people to play win-win games of exchange.” The author then reflects on how the Soviet Union mistakenly made their trades win-lose, this is because they would make the house way overpriced and then force people to buy it at that price. I found this historical fact to be quite interesting considering how unlikely it sounds as well as I disagree with this system completely because of how corrupt it is. The speaker then proceeds to speak on examples of how the free trade system works in everyday life. These examples include getting a job, buying

The stock market in the United States is run so anyone can view the trades, their values and no information is hidden. Compared to the stock market, the bond market is run behind closed doors causing problems in the economy. The difference between the two markets became more understood during the Great Recession. When the unethical ways of individuals in the selling of bonds caused corruption that contributed to the recession, many people were hit by the repercussions of the selfish actions. Selling the bonds to people who weren 't in good financial situations became a normal action which cheated many individuals out of money. The bond market would be better off being transparent parallel to the stock market because less people would

Most rely on valuation heuristics involving P/E, PEG, and price-to-sales . The simplicity of using heuristic triggers dependence on valuation heuristics as an alternative for the fundamental valuation. P/E, PEG, and price-to-sales need few variables and use simple formulas. Therefore , the estimates are rather perceptive THUS subject to bias. The cause of these biases arise from weak assumption made towards P/E, PEG, and price-to-sales inputs.

Since the emergence of the so-called irrelevance theorem by Miller and Modigliani (1961), many corporations are puzzled about why some firms pay dividends while others do not. They were the first to study the effect of dividend policy on the market value of firms by assuming that there are no market imperfections. Miller and Modigliani (1961) proposed that divided policy chosen by a firm has no significant relationship in as far as the market valuation of the firm is concerned. They went further to explain that; the shareholders wealth remains unchanged irrespective of how the firm distributes it income because the firms’ value is rather determined by their investment policies and the earning power of its assets. They further stated that the opportunity to earn abnormal returns in the market does not exist, that is, owners are entitled to the normal market returns adjusted for risk.

* The value of the stock may see an upward trend thus increasing the initial investor’s financial wealth

Economics is partially mathematical science and partially a study in human psychology. Both financial and psychological factors affect the behavior of investors and the marketplace. For example, one popular theory known as expectations theory is based upon the "hypothesis that long-term interest rates contain a prediction of future short-term interest rates. Expectations theory postulates that you would earn the same amount of interest by investing in a one-year bond today and rolling that investment into a new one-year bond a year later compared to buying a two-year bond today" (Expectations theory, 2012, Investopedia). In other words, a certain consistency is assumed regarding rates, even though many analysts have noted that this simple and elegant theory is often inaccurate and tends to overstate gains (Expectations theory, 2012, Investopedia).