Stock Market for the Win - Research Paper Example

?Stock Market For the Win The next big company is likely right around the corner. Industries that were once the stuff of science fiction are now the banal giants of biotechnology, pharmaceuticals, nanotechnology and so on, with more on the way. The social media revolution is set to send quakes through the stock market, thanks to an imminent Facebook IPO that may raise nearly 7 billion dollars (Delevett). Despite market shocks from the housing bubble and despite the ongoing drag of the Great Recession, the stock market has persevered as the preeminent place to invest money. As Kimmel and Hirsch note, “The past 30 years have seen fantastic developments in almost every field. It is time for the investment world to reap the benefits that we have seen transform and improve the rest of our world. (Kimmel and Hirsch, 2009, p. xiv). The time has come for those individuals who have yet to plunge into the welcoming waters of the stock market to do so. This paper will outline four principle benefits: financial return, the security of diversification, and the sense of control over one's financial future. The principal reason for investing in stocks flows from the likelihood of financial returns that are higher than one might earn through some other investment strategy. Investing in the stock market offers one the opportunity to take the money that they've earned and allow that money to work for them beyond the point of its acquisition. The stock market constitutes the most enduring system for assessing and contributing to the larger financial system, and provides one of the principle ways for informed consumers to earn a higher rate of return than would be possible through other investment or savings strategies. With an average return on one's investment of over 9% over 25 years (Observations 2009), the stock market makes even high fund money market accounts seem the choice of cowards or simpletons. Consider this particular case. A decade ago, a struggling computer manufacturer stood on the brink of bankruptcy, its stock price falling to historical lows. So real was the chance that the company would fold that its arch rival injected capital to keep them afloat, so worried was this rival about suits alleging monopoly control of the industry. The rescued company's stock price hit bottom at under fifteen dollars (Yahoo Finance 2001). Investors fled, but not all of them. Some committed themselves. Some bought in. These investors thought different. Today, that company, Apple, Inc., boasts a stock price of 570 dollars (Wall Street Journal 2012), the largest market capitalization of any company in history, and the more capital reserves than the U.S. federal government. For the investors that stuck with Apple, or who recognized opportunity in the collapse of their stock price and purchased new stock, the rewards have been substantial. Of course, one could lose money instead of making it. As with any investment, the possibility exists that the return will be negative and that the best laid investment plans will be more those of mice than of men, and that one's money will vanish on the next margin call. It would be a disservice to pretend as if this chance did not exist, precisely because it is the chance of failure that makes the reward for success so substantial. Indeed, some might describe the stock market as a “gamble” with your money, a sort of DOW and NASDAQ checkered roulette wheel. Dismissing stocks as a gamble would also be a disservice, for it misconstrues the structure of the stock market in order to stretch a metaphor to uncomfortable lengths. In a casino, for example, one gambles on games of chance, structured such that the house always wins. But here the house, if one is to follow the dictates of the metaphor, are the composite of the companies themselves, and if investment dollars flow in, then the eventual likelihood of dividends flowing out increases in the aggregate. In addition, unlike games of chance, with stocks one can make an informed and researched opinion. The odds are not in the house's favor, not ruled by the dictates of established probabilities—rather they are predicated upon the capacity for a company to perform or exceed expectations, something that any observer can attempt to divine by educating themselves about the company, its products, and its market. Finally, any investment can fail; failure is the endemic condition of all investment returns. The same forces that might lead one to pass on stock market investment should just as readily make individuals rethink all sorts of investment strategies. Real estate can be vandalized, destroyed by natural calamity or human error; the bubble can burst, neighborhood crime or gentrification can gut property values, and so on. Banks can make poor investments and collapse or fold, taking your savings with them. Inflation can sap the value of money faster than you can store it inside the springs and cushions of your mattress. If one is going to risk their money for real gain, they should do so in a climate in which that risk is ameliorated by education and perspicacity. This leads to the second major reason to invest in stocks: contrary to some opinions, the capacity to diversity one's investment portfolio provides more financial security for one's investments than does more narrowly chosen investment opportunities. If one invests all of their money into real estate, and real estate tanks, as it did recently, then one is left out in the cold, with the potential that they now lack the ability to rebuild their portfolio. But if someone invests across a spectrum of companies, and in this way hedges their bets about market trends and company performance, they insulate their investments from failure. Even should a particular stock collapse due to unexpected revelations, the savvy stock investor can recoup losses by switching resources to those stocks that are performing well. The third, and perhaps the biggest reason to invest in stocks is also the most esoteric: investing in the stock market gives one the sense that the individual citizen, rather than nameless others and faceless institutions, controls their own economic destiny. With a traditional savings account, in which one accrues a modicum of interest on deposited funds while all the while those funds are being used by investment bankers to advance their own bottom line. This comfortable bit of financial somnambulism might be fine for the average Joe public, but for the kind of American pursuing that most American of dreams, who understands that money is earned through work and not through passivity, letting someone else get rich from investing your money isn't just a missed opportunity. It is a surrender of the sort of individual responsibility that makes this country hum. One either chooses to control their economic destiny, to play the hand they've been dealt, or to earn another shot at the deck, or one chooses to be controlled by those who do. Investing in stocks, choosing one company above another, communicating with your broker so as to inform and stay informed, managing trades and profits and all the rest—these are actions that give oneself ownership over their financial fate. The smart investors who gobbled up Apple stock at its nadir gambled their money, to be sure. Those investors who grabbed a mere 1000 shares turned $15,000 into $570,000 in a decade, an astronomical return, and one that may be even higher within a few years. Apple might be exceptional, sure—but they are the case that proves the rule, for exceptional opportunities abound in stocks. All one needs to do is to look for them, and to act. The opportunity for financial gain is robust, the security of investment diversification is real, and the pride and sense of ownership over one's financial future cannot be overvalued. The next Apple, the next social media giant, the next pharmaceutical revolution await investment from those with the vision and means to invest. The time to invest in stocks is now. Works Cited Delevett, P. (Apr 21 2012). “Facebook's pending IPO poised to shake up SV150 rankings.” MercuryNews.com. Retrieved from http://www.mercurynews.com/business/ci_20418951/facebook- ipo-may-sv150-silicon-valley-rankings?source=rss. Kimmel, J.L. & Hirsch, J.A. (2009). The magnet method of investing: Find, trade, and profit from exceptional stocks. Hoboken, NJ: John Wiley & Sons, Inc. Observations (and Notes). “Average stock market return since 19xx (updated through 2011).” Retrieved from http://observationsandnotes.blogspot.com/2009/03/average- annual-stock-market-return.html. Wall Street Journal (2012). “Apple Inc. AAPL (NASDAQ).” Comprehensive close at 4:00pm ET 4/0/2012. Retrieved from http://quotes.wsj.com/AAPL. Yahoo! Finance (2001). “Apple Inc. (AAPL).” Date range Sep 7, 2001-Sep 25, 2001. Retrieved from http://finance.yahoo.com/q/hp? s=AAPL&a=08&b=7&c=2001&d=08&e=25&f=2001&g=d. Read More