The stock market

R1 The stock market is great for learning because experience is always a great method to learn how to do something. If I were starting in the stock market without much knowledge or experience I would start with just minimal money and play around with it while doing extensive research on the companies and investing. The stock market can help teach investing because the investor can learn different markets supply and demand ratios and how current events can fluctuate prices. Good investors do their research on companies by looking at earnings reports and other valuable information that tells the entire story. It can teach investors what a good buy is and when to get out of an investment. It is also helpful in learning how a business works how to read financial statements and where the future is going to be taking us. Investing in the stock market can unfortunately also teach people about risk. Hopefully this lesson is learned early on with a small investment. If you are in the investing game long enough this lesson is a sure bet. I think it is a good idea fro anybody in business to at least invest in the stock market at a basic level until they understand. For business owners it could be a great learning tool to model their own business after. They can see firsthand what successful businesses do and activities that unsuccessful businesses do. Future accountants can learn about balance sheets income statements and cash flows. The real-world experience can all be learned by investing in the stock market because of the vast array of lessons it has to teach investors. Elkins K. (2019 March 18). Only half of Americans have access to a 401(k)-heres how to save for retirement if you dont. https://www.cnbc.com/2019/03/18/how-many-americans-have-access-to-a-401k-and-how-to-save-for-retirement-without-one.html. R2 Great investors use the stock market just as the stock market makes great investors. I think the stock market forces good investors to seek more information about the companies they are purchasing stock in. The current value of a stock only gives us so much information. From the lecture our instructor posted we can see that there are ways of researching a companys finances. By utilizing this information an investor can then have a better understanding of the real value of said stock. On top of this I think the stock market teaches valuable lessons to investors. Patience would be a big one. Its unlikely that youre going to get rich quick with stocks. It can often but not always take many years for an investor to see big gains. The stock market helps us become better investors by also teaching us to be diversified. For example an investor who bought stock in only hotel chains may have learned a tough lesson over the last year. Its practically impossible to see these types of downturns coming. Like this quote I found online “Just accept the fact that market downturns are inevitable and invest accordingly” (Williams Sean). A stock market crash might help an investor become better by teaching them they shouldnt be invested in stock alone. One last lesson to be learned from the stock market is failure. Every investor will have made some bad decisions over their life its just part of the game. Williams Sean. (June 24 2015). “21 things Ive learned as an investor for 20 years”. https://money.cnn.com/2015/06/24/investing/21-things-i-have-learned-as-an-investor/.R3 When you are looking at investing with anything you really need to look at the company that you are looking to invest in and not just their stock base. Don’t let the stock prices become the abstract concept. When investing in the stock market you learn different things like you have to check your emotions. So you have to control your urge to get other people in trouble while investing. Planning ahead is always a great thing for anything you do. Keeping track of your stock while making a plan for what stock would be best to keep or get rid of in times of crisis. Never over spend going into buying stock. Start small and work your way to bigger stock this way you can work your way to buying more stock and reduce risk. Then you should always avoid over trading. Trading is like “soap” the more you handle it the less you have. So all the costs associated with trading lessen the amount of money you have invested or costs you out of pocket. R4Different companies stock prices fluctuate at different levels for different pieces of news. When earnings are reported stock prices often fluctuate to whatever information was reported for that quarter. Different pieces of news or headlines a company has also plays a big part in the stock price. Another important part of picking a company to invest in is knowing the management and the people in charge of that company. If you do not feel comfortable with a member who is part of that management it is not a good investment for you. These are just some of the factors that go into determine a stocks price. Equity valuation is another factor that determines prices. If these valuations are significantly different than what was predicted by analysts the stock price will see a bigger fluctuation than they would if there was not major change. Any reporting on numbers that come out of a company add to investors opinions on what the stock is worth. It also changes the price for what the actual price is valued at. This is why the stock prices are always fluctuating based on the latest information. It does not even have to be directly correlated to the company. The information could be about a competitor or just the sector in general. Long-term investors can be less concerned with the noise of the recent headlines unless they drastically change the company and its outlook. Equity Value – How to Calculate the Equity Value for a Firm. Corporate Finance Institute. (2019 November 16). https://corporatefinanceinstitute.com/resources/knowledge/valuation/what-is-equity-value/. R5 “Equity valuation is a blanket term and is used refer to all tools and techniques used by investors to find out the true value of a company’s equity. It is often seen as the most crucial element of a successful investment decision.” (CFI n.d.) Large and small investors alike will be looking at a company’s equity valuation. Typically the higher the equity valuation the higher the value of the stock. Generally in my opinion the larger a company is it usually means the more money or equity they have. When you have more equity you have more power. When there are good or bad happenings around the world or involving your business the less likely you are to be affected by it. However this is not always true. Some bad news can be specific to one company and therefore can only hurt that one company. For example Target. When we think of Target we think of a large retailer – big powerful lots of equity. But when Target experienced a security breach of credit card numbers they were greatly affected by it – profits dropped stock prices dropped. The breach only affected Target and as such only Target paid the price for it. Well because of Target’s size and power they were able to recover over time and are back to business as usual – normal profits and stock prices. Had this same situation happened to a mom-and-pop type company someone with less equity they may be forced to close shop for good. So I would say that the greater the equity valuation the more powerful and less affected a company and/or its stocks would be by good or bad news. Reference Corporate Finance Institute (CFI). (n.d.) Equity Valuation. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/valuation/equity-valuation/ R6 SFrom my research there seems to be a fair amount of overvaluation for many leading companies as well as most of the market. Tesla is one that I have read is highly overvalued. In an article I found its stated that Tesla is trading at fifteen times its projected revenue for the 2021 year. To put this into context in order to justify this valuation Tesla would need to earn twice the profits that the top ten automobile companies do (Trefis Team). Is the overvaluation due to Tesla recently being added to the S&P 500? There seems to be a trend as I research more companies and their equity valuation it being one of overvaluation. Teslas share prices are likely very vulnerable to “good or bad news”. I imagine being valued at a level that has not yet been justified would leave a company more susceptible to economic issues. Trefis Team. (December 21 2020). “Will Highly Overvalued Tesla Stock See A Correction After S&P Inclusion”. https://www.forbes.com/sites/greatspeculations/2020/12/21/will-highly-overvalued-tesla-stock-see-a-correction-after-sp-inclusion/?sh=6bb27746725a.

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