CONCLUSION

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CONCLUSION The study of asset valuation tel us that the stock price of any company should reflect its expected future profitability. Although most of the tools of finance are well established, there is more controversy about the validity of the efficient markets hypothesis and whether stock prices are, in practice, rational estimates of a company’s true worth. Rational […]

MARKET IRRATIONALITY

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MARKET IRRATIONALITY The efficient markets hypothesis assumes that people buying and selling stock rationally process the information they have about the underlying value. But is the stock market really that rational? Or do stock prices sometimes deviate from reasonable expectations of their true value? There is a long tradition suggesting that fluctuations in stock prices are partly psychological. […]

For a Nobel Prize Winner, Less Is More

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For a Nobel Prize Winner, Less Is More If you’ve won the Nobel Prize in economics, society assumes you’re probably brilliant at managing your own money Daniel Kahnenan, who shared the Nobel Prize in 2002, didn’t win the prize for his investing acumen. H’ made some key insights into how human psychology consistently flummoxes investing decisions Prof Kahnernan’s research […]

RANDOM WALKS AND INDEX FUNDS

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RANDOM WALKS AND INDEX FUNDS The efficient markets hypothesis is a theory about how financial markets work. The theory is probably not completely true As we discuss in the next section, there is reason to doubt that stockholders are always rational and that stock prices are information-ally efficient at every moment. Nonetheless, the efficient markets hypothesis does much […]

THE EFFICIENT MARKETS HYPOTHESIS

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THE EFFICIENT MARKETS HYPOTHESIS There is another way to choose 20 stocks for your portfolio: Pick them randomly by, for instance, putting the stock pages on your bulletin board and throwing darts at the page. This may sound crazy, but there is reason to believe that it won’t lead you too far astray. That reason is called […]

FUNDAMENTAL ANALYSIS

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FUNDAMENTAL ANALYSIS Let’s imagine that you have decided to put 60 percent of your savings into stock, and to achieve diversification, you have decided to buy 20 different stocks. If you open up the newspaper, you will find thousands of stocks listed. How should you pick the 20 for your portfolio? When you buy stock, you are buying […]