Northern Virginia Community College
Assignment for Course:
| Finance 215 – Financial Management
| Submitted to:
Date of Submission: 08/01/2013
Title of Assignment: Stock Market Project part 3
Instructions: See the Discussion board for instructions for the three parts of the stock market project.
CERTIFICATION OF AUTHORSHIP: I certify that the individual named above completed the assignment that is attached. Any assistance received in its preparation is fully acknowledged and disclosed in the paper. Any sources from which the individual used data, ideas or words, either quoted directly or paraphrased is also disclosed.
It has been an interesting journey with the stock market these last couple months. This is my first experience ever in contact with stock market and of course studying and understanding it. Honestly, I still feel like an “idiot” in that market but “less idiot” than before. When I picked the stocks to study I tried to pick firms I knew tech, or contractors without even doing a study on them. I had no idea that Apple was going down since September 2012 (well it’s starting to rise again). I didn’t pay attention that my portfolio was heavy on tech companies and I head no clue that it might be smart to invest even in “bad” companies. Well, I didn’t learn something and here are some of my findings. It is kind of tricky to think if it’s a good time for short or long - term investments. The current reality in today’s market is that stocks will undergo multiple price change. Even stocks that lose money if held for a year or longer may be very profitable at several times during the year. The future is the only thing that matters. There is no way to know in advance how long a given stock should be held. Over the short term, the behavior of the market is based on enthusiasm, fear, rumors and news. Over the long term, though, it is mainly company earnings that determine whether a stock's price will go up, down or sideways. On the face of it both stock markets and casinos look very similar. When you play roulette you don't know whether you are going to be lucky and win, similarly when you buy a stock, you have no clue whether the price will go up or down the next day. (Well, at some point few “experts” pretend to know how to predict for both cases) The casino is mostly irreversible decisions. You put your money down and you take your chances. That is totally an irreversible decision. Decisions with stocks are totally reversible. I can buy a stock and sell it the next minute. Sure it can cost money to change my mind but I can still change my mind. When you put your money down in slot machines, you cannot change your mind. When you go to a casino, it’s only a die-hard gambler who thinks he will definitely make money. Most of us go for a bit of entertainment and know that we in all likelihood will lose all the money before we comeback from an exciting trip. On the other hand when you invest money in the stock market and build a portfolio of 10-15 stocks, you are actually investing in the future of these companies. Highly unlikely that if you have chosen these companies with care, all of them will do badly and you will lose all your money! However, what it does suggest is that if you are invested long enough, you will gain from some of the sharp upswings and eventually make a reasonably good return. On the other hand, if you are a trader and are betting on day to day directional movement of the market, you can lose money if your bets are wrong. Business is not risk free and to that extent neither can stock markets be. But by diversifying across multiple companies you are reducing your risk. Diversifying – which means buying different types of investments -- lessens the risk because even if some of the holdings go down, others may go up (or at least not go down as much). On the flip side, a diversified portfolio is unlikely to outperform the market by a big margin....
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