STOCK MARKET

Stock Market

Introduction to Stock Market

I) Would you recommend your family members, relatives, friends, or clients to invest money in bank stocks? Please explain your reasoning.

However, it is important for an investor to have a diversified portfolio, but it is also vital that while investing in any sector or company, it is necessary to have complete knowledge about the sector. In 2009, the banking sector is the cause of stock market crash as the borrowers were not able to pay off their loan due to which many banks faced loss; which impacted the whole stock market.

In 2009, failures of massive financial institutions in the U.S., due primarily to exposure of securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly devolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. The failure of banks resulted in devaluation and threatened the government with bankruptcy. However, they were able to secure an emergency loan from the IMF. In the U.S., 15 banks failed at the same time as quite a few others were rescued due to the acquisitions by other banks or interventions by the government (Patterson, 2010). Moreover, for this, the head of the IMF warned that the financial system of the world was teetering on the brink of systemic meltdown.

In the above case, I would not recommend to anyone to invest in the banking sector up to 2010, but now the situation is different as the banks are now more careful while giving loans and government intervention also increased to face any market crash. Therefore, I would recommend my family members, friends, relatives or clients to invest money in bank stocks.

II) Can your investment style improve potential rate of return on investment in the stock market? Please explain your reasoning in brief.

My investment style is growth and income. Growth and income funds seek income and long term growth through a combination of stocks and bonds; this also known as balanced fund. Moreover, investing in securities is to choose activities with low valuation and solid fundamentals (Elliott, 2008). The value investors with an eye for long term opportunities, since the value usually take time to materialize; this will also help in improving potential rate of return on investment in the stock market. In addition this, the risk free rate of return is the least return an investor expects for the investment because he will not accept added risk until the potential rate of return is greater than the risk free rate. However, in practice, the risk free rate of return does not exist for the reason that even the safest investments hold a very little amount of risk. Therefore, in my view, my investment style will help in improving potential rate of return on investment in the stock market.III) How important is it to keep an eye on the prices of stocks you own or you might want to own? Please explain your reasoning in brief.

Monitoring the prices of stocks you own (or you wish to ...