Rationala Behind the Downfall of Stock Investments PDF

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TABLE OF CONTENTSStatement of the problem...................................................................................... Title Page......................................................................................................... Table of Contents..........................................

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TABLE OF CONTENTS Title Page……………………………………………………………………………………………1 Table of Contents…...............................................................................................................................2 Abstract……………………………………………………………………………………………..3 Statement of the problem…………………………………………………………………………..4 Factors Affecting Stock Market…………………………………………………………………....5 Risks in investing stocks…....................................................................................................................6 What Causes Stock prices to change……………………………………………………………....7 Issuing and investing in stock………………………………………………………………………8 The Efficient markets hypothesis and stock price movements…………………………………...9 Research method…………………………………………………………………………………...10 Conclusion…………………………………………………………………………………………..13 References………………………………………………………………………………………….14

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“Rationale behind the Downfall of Stock Investments”

Abstract: This research aims to examine different reasons why stock investments slide. The goal of this research is to identify the causes and state the possible alternative courses of action that may help investors identify the risks that they may face in the future. Stock investment is one of the most relevant investments in the corporate world. It gives of return and almost investors preferred it rather than different investment. Introduction: In the field of business many businessman invest their money in building their own business, but there are some who choose the easy path such as investing rather than having the trouble of making and building a business from scratch, other people risk their money in investing in different market such as Stock market, Capital market, Mutual funds, etc. The most well known market is stocks. A stock is a certificate of ownership in a company which you can earn dividends. Stock is one of the most famous kinds of investment not only in the Philippines but also in other countries. A person with wide knowledge tends to invest in stocks due to higher chance of profitability rather than other kinds of investments. Like Mutual funds, Cash Equivalent, Bonds. Companies sell stocks to generates fund and for the continuance of the business operation. Unfortunately not all investors are successful in their investment because of inconsistent value of stocks. According to ( Croushore 2014)within the late 1990’s, because the market rose to record levels, some economists argued that the stocks were overvalued-that stock costs were too high and were possible to fall. However what confirms the extend of stock prices? However do associated degree analysts determine once the market is overvalued? And the way will investors decide where to invest? Responsive these queries needs an understanding of the potency of stock markets, however stock costs replicate company earnings, however interest rates have an effect on stock costs, and the way peoples attitude toward risk amendment over time. The solution are vital to policymakers similarly as a result of movement within the stock exchange are possible to have an effect on the economy. We examine how the stock market works, the major influences on stock prices and returns, and data on stock prices and returns over time since 1875. Next, we look at whether investors can follow profitable financial investment

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strategies. With an application to everyday life to show how an investor should compare stocks with other financial investments, such as bonds or real estate. Statement of the problem The Problem in Stock Investment some people choose to entrust their moneys to the broker who is responsible in negotiating in Philippine Stock Exchange. Although some people don’t understand the concept of stocks they risking their money because they thought they could receive a high and fast investment return. Objective: - In able to know how stock investment generate profit. - To identify the factors affecting the stock market - To identify the risk in investing in stocks - To identify why people choose to invest in stocks. - In able to know the things that makes stocks to declines.

Literature Review When you begin investment available, it is important to grasp however you may truly be ready to create cash from owning the stock; to intimately have a grasp on however the rise in wealth is generated for you forward you have hand- picked your position sagely. Although it appears difficult, at its core, it’s quite easy. Stock must equal the add of 3 components: 1. The initial dividend yield on value 2. The expansion in intrinsic worth per share( for most companies, this amount to the expansion in earnings per share on a totally diluted basis) 3. The amendment within the valuation applied to the firm’s earnings or different assets, typically measured by the price-to-earnings magnitude relation.

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Factors affecting the stock market There are some factors affecting why stock market downfall and these are the economic, natural and manmade disaster and market psychology.

Economics Economics affect the stock market because of inconsistent changes like, interest rate, and inflation. Also, economic growth can affect stock market because the more profit of stocks to grow. Inflation may increase the price and it may affect the higher interest rate, the lessen investors to buy stock and which they prefer to sell it. The lower interest rate many investors to buy.

Politics Politics can affect the positive or negative issue and rules of the government, if the governments issue a rule or policies it may be affect the financial market especially in stocks. For example is president election that some investors doubt on it should be a good chance to invest stocks or not. And another is Train law, companies and also people affected. These are the scenarios can affect the stock market and also can affect the economic growth.

Natural and Man-made Disasters Natural and manmade affect the stock market. In natural disaster, if the certain city affect like typhoon and earthquake and that city has a lot of economic activity many investors will not or moved out their invest because of a fear that their money invest will be loss. Similarly, in manmade disaster, if there is a negligent at a man made facility, it may cause a negative feedback to the investors.

Market Psychology Investing stocks can affect the emotion to the investors, like they invest stocks in the market, they feel confident that they may success and also fear and regret that the money they invest in stock cause of downfall.

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Risk in investing stocks Types of Risk some risks associated with investing in the stock markets:  Systematic risk – probability that your investment especially in stock market will be loss or failure.  Unsystematic risk – your investment in stock may be avoided by portfolio diversification.  Other risks - chance risk and liquidity risk (as represented within the “Bond Risks" section) may

additionally apply to stocks in an exceedingly portfolio.

Why people choose stocks 1. Stocks offer most potential and gives high return investment than others. In Us, They prefer to invest in stocks because of its consistent earnings more than bonds and other long term investments. Despite of the regular fluctuation of the value in market and different risk may occur. Investing in stocks still give you an assurance that at the end you can get you’re expected or more returns.

2. Investors of stocks can perhaps enjoy and manage the inconsistent fluctuation of value in market. It is important for the investors who are enjoying long term investment to own a specific amount of stocks. The fluctuation of market may scare you and can cause pain in time. But if market back into its normal and stable movements. You don't need to worry of losing your money because you can now play and manage its cycle during the declining stage. The worst downfall of stock market happened for almost a decade and a part of dark history of stocks. But still it offers quality, high and reasonable return.

3. Investors have a choice to everything or not as investors I have a choice to invest all of my money or not. Only those who are risk takers who have guts to place all of their money in the market specifically in stocks. But the suitable investment decision should be made in person's point of view, financial capability and endurance for risk.

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WHAT CAUSES STOCK PRICES TO CHANGE? Because of market forces stock prices gradually changes. It means that supply and demand affects stock prices. The price of stocks increases if there are more people who want to buy (demand) stocks rather than selling it (supply). If it falls then the supply is higher than demand so it means that more people to desire sell stock than buy it. Learning supply and demand can be a piece of cake but the hard thing understands what makes the people desire a stock and disapprove another. It brought us in finding out what average is positive and negative for a firm. If you'll ask this to any investor they can give you their own ideas and strategies. This basically means that the investor knows the company's worth by its price movement of stock which is the principal theory. Do not associate the value of the company to the price of stock. It will be like this $10 X 100,000 = 1,000,000 while $5 X 500,000 =2,500,000. To make it more difficult, a company's current value doesn't only contemplate stock price it could also reflect the development that investors expect in the future. Earnings are one of the most essential factors that can influence the company's value. It is the profit that company generates and no company can stand without it. Simply because a company who is not making money cannot go into business. It is required that every four times a year once each quarter, companies needed to report about their earnings. During earning season Wall Street is watching with rabid attention. The reason is because analysts utilize the value of a company as a basis in their projection of earnings. The price increases if the result is unexpectedly surprising. It falls when the result is disappointing. Naturally, not only the earnings can change the opinion towards stock that can also change its price. If that is what it was then everything will be effortless, example throughout the dot-com bubble, a lot of internet companies effortlessly not making even the smallest profit arise just to have a capitalization market of a billion of dollars. But it didn't last long and many of all internet companies watches their values decreases. Nevertheless, we have proven that not only current earnings can affect stock but also because of the movement of prices. A lot of variables, ration and indicators have been developed by the investors like P/E ratio. Then, why stock prices change? No one has the efficient respond. There are some who believes that its impossible to accurately predict how stock can change in price and others that thinks making price when it comes to price.

The following are the necessary topics to comprehend: 1. The one that determines stock cost inside the market is non other than free market activity in the very critical level

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You can determine the worth of a company by multiplying the price with the number shares outstanding or the capitalization of market. Differentiating two company's price of share is useless.

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Apparently the estimation of company by investors is affected by the returns, although investors utilize different measure to foretell the price of stock. But there are things that primarily influence the price of stock it is the presumption and attitude of an investor.

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A lot of proposition tried describing the movement of the price of stock. But sadly, until now no proposition can describe each thing.

The comprehensible pressure indicator of the health of economy is stock market. The confidence and negativity of an investor will reflect to the stock prices. So when the prices of stock are high, people savor the economic success Issuing and Investing in Stock Corporations issue stock because they want to raise funds to invest in capital improvements such as new equipment or production facilities(investment in physical capital).People invest in stock because they want to own a piece of the corporation, thus making a claim on the profits of the firm (financial investment). The investors benefit when the firm pays dividends or when the firm’s stock rises in price. (Of course, they lose when the stock declines in price. Investors who own stock in a corporation are called shareholders or stockholders, which mean that they are part owner of the firm. Shareholders are entitled to receive any dividends paid by the firm, and they have the privilege to vote on key decisions affecting the firm, especially choosing its board of directors. The board of directors, in turn, chooses the management team of the corporation, headed by the president a shareholder who no longer wants to own stock in a particular company must find another investor to sell the stock to. In general, stock indexes move in the same direction at the same time. But the different indexes show quite different total returns. An Investor’s View of Stock Returns and Prices Investors care about making profits on their stock investments. They want to buy stocks that are going to provide them higher returns than other stocks. Thus, they would like to own stocks that pay high dividends or whose prices are likely to rise more than other stock. Most investors, of course do not own stock in order to control the company but rather because they think that the firm will be profitable in the near future. Their ownership stake entitles them to a share of those profits. When a firm earns profits stockholders benefits in two ways: First, the firm may pay out part of it profits to shareholders in the form old dividends. Second, the firm may return having a stock means you own a part of the company and you

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are entitled to its assets and profits. A type of stock that has no assurance of dividend payment and grants the owner voting rights is what we called common stock. Stock with no voting rights although it assures the owner of having a dividend payment that is preferred stock long ago, investors are given a certificate of stock in a piece of paper of course. This is called security it confirm the amount of share an investor owns. Nowadays, using technology an investor share of ownership is documented in computer system and street names are use to represent an investor share by its own brokerage firm. It is difficult to invest in stocks. Also, it is wise to consider an investment as your own business. That is how Benjamin Graham mentor of Warren Buffett's stock learned in investing with conviction and it is suggested. Mastering the basics in investing in stock is necessary before buying one. Basics will not make you a prominent investor within 24 hours; however, you can be confident in buying stock if you know first the fundamentals in investing on stocks.

The efficient markets hypothesis and stock price movements The efficient markets hypothesis assumes that the stock market is deep(with many buyer and sellers) and liquid (easy to buy or sell at any time). In such circumstances, new information that becomes available, such as Intel announcing an increase in computer chip sales, immediately affects the demand and supply of the stock and thus its price. Only unexpected news causes stock prices to change. The efficient markets hypothesis sometimes is combined with the assumption that investors do not care about risk. Under such an assumption, stock prices move randomly; they are said to follow a random walk. This means that the movements of stock prices from day to day, year to year, or decade to decade are not predictable. Are Stock Returns Predictable Only Because of Risk? Is there any clear-cut evidence that the stock market is not efficient if we consider that investors are likely to be averse to risk? Some economists do not think that there is such evidence that stock markets are not efficient. Anomalies are observations that do not fit a model. In looking at stock prices, anomalies are cases in which there are predictable patterns to stock prices that investors could exploit, even accounting for risk aversion. In studying stock prices and total returns; and accounting for risk very carefully, economists have discovered many anomalies, the most prominent of which are - Stock in small firms has a higher risk adjusted return than stock in large firms - Stocks have higher than average returns in early January - Stock prices do not change as much as they should when firms announce changes in their earnings

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- The day of the week has an effect on a stock’s return; in particular, returns are lower over a weekend, and the best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late Tuesday or Thursday. - Firms that pay no dividends or pay high dividends yield higher returns than firms that pay low dividends.

Research Method In able to answer the research objective, we utilize qualitative research method. Making use of the data to know the records, stocks emphasize the level of stock prices, how its market overvalued and how investors decide where to invest. We also applied literature review using information on different sources and thematic analysis1 in order to support the objectives. The point of this research is to understand the difficulty in immersing oneself in things such as stock, the risk investing in it, declining of stocks, people affected by the declining of stock investment. Quality research is principally experimental research. It obtains knowledge about the unexpressed objective, judgment, and motive. It gives understanding in the complication or aids in developing theories for possible quantitative research. This research is applies to reveal movements in ideas and belief to learn more about issue. Thematic analysis is a methodical technique in analyzing the data in qualitative that necessitates, recognizing the topic or markings in racial explanation, in putting and categorizing data. Documented based on subject and expounding the outcome in thematic form in attempting to find. Findings and Discussion: Investments, particularly on stock face several risks that could lead to its downfall. Generally, stock investment is a risky business. You may lose a huge amount of money and sometimes, the returns are not guaranteed. Investing in stocks is unpredictable. There is always a sudden change in price. Due to some factors especially when a stock is volatile this makes it a lot more risky. According to (Lewis 2003). There are several factors and risk that is faced by the stock investors Here are some; 1. Volatility Volatility is the characteristics of a security that is usually known as "Involuntary Risk". It simply refers

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to rise in the price of a portfolio or security over a period of time. These uncertain happenings affect not only the small enterprise, it also affect the overall market. Volatility doesn't always bring downfall to the price of stocks. Because it also refers to the instant movement in prices. So basically, if the price tends to rise. The holder of low priced stocks would be benefited and vice versa. It includes; Geopolitical Events - Different economy of different countries are connected to the global world. For example, the recession occurred in Japan could have a threatening effect in the economy of the United States. Inflation - Called as the purchasing power risk which can reduce the value of assets and increase the value or goods available to market. Economic Events - Includes Tax Revisions, Instant changes in interest rates and implementation of new monetary policies that could greatly affect the economy of the country. 2. Timing a person who knows a lot about market claims that the key to a successful investment it to buy low priced...