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Investment Analysis Coursework 2001 - Essay Example
Author : loraine19
Finance & Accounting
Pages 8 (2008 words)
Investment Analysis Coursework 2001 This paper is an essay and offering few arguments in acceptance or rejection of the following statement made by Warren E. Buffet. For the purpose this theory or statement has been compared with Eugene Fama’s ‘efficient market hypothesis.’ Introduction: “When the price of a stock can be influenced by a ‘herd’ on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally…
‘Herd’ implies a social grouping of people, who have similar understanding or perception about anything. Here ‘herd’ implies the people, who have the same viewpoint within the stock market. The above statement briefs that market movements are dependent on individuals. If a person buys a particular stock and he is a popular figure in the community and society, then every individual intends to purchase this stock and this is simply because the first person has bought it, not because of the market value of the stock. “Perhaps 100 people were simply imitating the coin flipping call of some terribly persuasive personality” (Buffett n.d. p. 4). The ‘margin of safety’ principle implies that safety should be ensured while buying stocks. Walter has justified that while dealing in the stock market, it should always be remembered that it is other people’s money which is being handled. Therefore it reinforces the ethics to strongly avert losses while dealing in stocks. It should always be remembered that money is real and therefore should be handled appropriately. ...