Week 3 Review post 2 minimum of 150 words apa format

Jennifert

1. How can you compare “tulip mania” from 17th century Holland to the dot.com debacle of the 20th century from a financial point of view?

In Holland people went crazy over the new tulips, especially the ones that were special and rare because of the virus. It got to the point that people were trading their homes and life savings for a single tulip. When everyone started to sell them and nobody was buying, it lead to a depression that lasted years (Beattie, 2017). The same thing happened with the dot.com debacle. In both cases people went crazy over the ‘new thing’ thinking that investing in it would bring them riches. Unfortunately, in both cases people went to the extreme, hyping up something that would later come crashing down.

1. Name and explain three ways in which the Internet revolution changed the lives of ordinary citizens.

One way that the Internet revolution has changed the lives of ordinary citizens is that people from one part of the globe can communicate with people from another in a matter of seconds. Another way that the internet has changed everyone’s lives is that for the most part, everybody knows what is going on everywhere at all times. We know about the wars in other countries and the attacks in other cities way faster than ever before. Also, the Internet has given everybody the possibility to ‘speak’ per se about anything. It is very unlikely that the feminist movement and the gay rights movement that we are going through today would’ve happened with out the Internet.

1. How did the birth of online discount stock brokerages impact the Internet revolution?

Well, investors have experienced the benefit of having lower fees and having more information available to them quicker. Also, the Internet has allowed for disintermediation, which is “the ability for investors to bypass old school full service brokers and advisors for both information and the trading of securities” (Fuhrmann, 2012).

1. If you were an investor during the dot.com revolution and you invested primarily in technology stocks, what fundamental principle of finance did you ignore and how did it affect the value of your portfolio?

If I was an investor during the dot.com revolution and I invested primarily in technology stocks, I ignored the fundamental principle in finance of diversification. That made the value of my portfolio lower and it made the risk higher.

1. What is diversification and what is its value for investor’s portfolios?

Diversification is when an investor invests in different kinds of stocks with different kinds of risks. It is valuable to an investors’ portfolio because it focuses on systematic risks.

1. Explain the relationship between the potential return on a common stock and the risk of that stock.

The potential return of a stock is how much it is expected to give back within a certain period. The risk of that stock depends on what is expected to happen in the economy. So the expected return of a stock could be 10% within 6 months  but the risk could be that the economy is expecting a small recession and you could actually have a return of -10%.

References

Beattie, A. (2017, March 7). Market Crashed: The Tulip and Bulb Craze. Retrieved June 19, 2017, from http://www.investopedia.com/features/crashes/crashes2.asp

Fuhrmann, R. (2012, January 15). How The Internet Has Changed Investing. Retrieved June 19, 2017, from http://www.investopedia.com/financial-edge/0212/how-the-internet-has-changed-investing.aspx