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Stock Investing Strategies

This research examines two theories related to stock investing strategies. The theories are (a) Castles in the Air and (b) Firm Foundations. The basics of the theories, including their effects on market prices, are explained in this Introduction. Following the explanations of the theories, the stock market phenomenon referred to as a "craze" is examined by assessing the Tulip-Bulb Craze and the Internet IPO Bubble in relation to the two theories. Finally, the importance of the Castles in the Air Theory is discussed.

The Castles in the Air Theory in relation to investing in equity stocks focuses on the psychologically-based and emotionally-based decisions made by some general investors, as well as decisions made by some professional investors based on interpretations of the likely emotionally-based decisions that will be made by general investors. Such investment decisions do not consider the fundamental characteristics of an investment security or of the company behind that security. Rather, investment decisions explained by the Castles in the Air Theory are based on (a) what investors hope will happen or (b) what investors persuade themselves will likely happen (Malkiel, 1999).

The Castles in the Air Theory can affect market prices in multiple ways. Companies that participate in the creation of a new industry that also are characterized by a sound management that have a good understanding of the potential of the new industry will benefit from market price growth that cannot be explained by fundamental analyses. Microsoft and Intel are two examples. Companies that enter a new industry with unrealistic expectations related to themselves and a misunderstanding of the potential of the new industry will experience a short-term market price boom followed by a disastrous market price crash, such as occurred in the Internet IPO Bubble. Growth in the computer hardware and software components of the information industry (Intel ...

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Stock Investing Strategies. (1969, December 31). In LotsofEssays.com. Retrieved 06:45, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1695097.html