Week 3 Review post 3 minimum of 150 words apa format
David
1) How can you compare “tulip mania” from 17th century Holland to the dot.com debacle of the 20th century from a financial point of view?
In the 17th century, people paid high prices without thinking about the benefits. During this time, traders would buy tulips and sell them at even higher prices. Later, the prices of the tulips have dropped tremendously which led to the merchants of having a huge loss.
In the 20th century the internet was introduced which lead to people believing it to be beneficial. Most companies that were based on the internet was to believe to have high growth. Such high hopes can lead to disappointment. Over time these companies couldn’t get the benefits that were expect.
2) Name and explain three ways in which the Internet revolution changed the lives of ordinary citizens.
The Internet has led to creating more jobs for us. Not only creating jobs but making work a lot easier. It has made the companies go more into online working schedules and programs. The Internet has also made trade easy. Where customers can buy products online and be sure to have it delivered at their house.
3) How did the birth online discount stock brokerages impact the Internet revolution?
When the Internet was introduced to us, everything changed. It changed how we watch movies, tv show, how we listen to music, buy or sell products. It also changed how we invested. Investors are not required to walk into a firm or even use a stock broker.
4) If you were an investor during the dot.com revolution, and you invested primarily in technology stocks, what fundamental principle of finance did you ignore and how did it affect the value of your portfolio?
Principle of ensuring cash flow was ignored at this time. This is due to companies not worrying about the profit as much as the growth of the company.
5) What is diversification and what is its value for investors’ portfolios?
Diversification is a technique that mixes a wide variety of investments within a portfolio. The purpose of diversification is to maximize return by investing in various areas that react differently. The benefit is to limit risk and improve the consistency of return.
6) Explain the relationship between the potential return on a common stock and the risk of that stock.
It depends on the aggressiveness with the investor. If you want to be aggressive, then you will want to have high risk. This will lead to a better return if done correctly but it can hurt as much as the gain. With the higher risk, not only you’re hoping for a great return buy you’re also making your money liable to having a huge loss. It’s the opposite with a low risk level. With a low risk level, you’re being conservative. You want to make money but don’t want to risk your money from disappearing. Therefore, you will not have a high return nor a high loss either. Most people use the low risk level when they’re within grabs of being retired.
References:
Loth, R. (2007, June 13). Measuring a Fund’s Risk and Return. Retrieved June 19, 2017, from http://www.investopedia.com/university/quality-mutual-fund/chp4-fund-risk-return/
Ross, S. A., Jordan, B. D., & Westerfield, R. (2016). Fundamentals of corporate finance. New York, NY: McGraw-Hill/Irwin.
