Tuesday 623T

 Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 27 of 36 Basic Tools of Finance
Section 10 of 14
…
One way to choose twenty stocks for your portfolio is to pick them randomly.
There is a reason random choices won't give you a bad result.
The reason is the efficient markets hypothesis.
…
The first aspect of the efficient markets hypothesis is each company on a major stock exchange is closely followed by many money managers, who use sophisticated computer programs.
These money managers constantly monitor news and update fundamental analysis to determine each company’s stock value.
Their job is to buy what they evaluate to be undervalued stock and sell overvalued stock.
…
The second aspect of the efficient markets hypothesis is the equilibrium of supply and demand sets the market price.
The number of any company’s shares at any time offered for sale equals the number of shares people want to buy.
At a stock’s current market price the number of people who think the stock is undervalued exactly balances the number of people who think it's overvalued.
So, all stocks’ value and price are automatically correctly valued all the time.
…
According to the efficient markets hypothesis theory the stock market has informational efficiency because it reflects all available information about the value of all stocks.
Stock prices change when information changes.
When there is unexpected good news about a company its stock price rises.
When there is unexpected bad news about a company it stock price falls.
At any moment in time the market price of a stock is the best calculation of the company's value based on available information.
…
An implication of the efficient markets hypothesis is future changes in stock prices cannot be predicted from current information.
According to the theory the only thing that can change stock prices is news that changes the market's perception of the company's value.
But tomorrow’s news is unknown today, so the value of a stock tomorrow is unknowable today.
The efficient markets hypothesis contends it is pointless to spend hours studying various companies to decide which twenty stocks to choose for your portfolio.
Because prices reflect all available information, no stock has a better value than any other.
The best one can do is have a diversified portfolio of stocks to reduce risk.
… …
information available today
kyō kayōna jōhō
今日可用な情報
… …
Why do people invest in specific-sector ETFs such as XLK – U.S. technology companies, or XLV – U.S. healthcare companies, rather than VTI - entire U.S. stock market, since specific-sector ETFs cannot beat VTI in the long run? ChatGPT:
Many investors buy sector ETFs such as XLK or XLV because they believe certain industries will grow faster than the overall market for a period of time.
However, many sector ETFs eventually underperform the broader market.
VTI is often preferred by long-term investors because it owns virtually the entire U.S. stock market, automatically includes future winning sectors, and avoids the risk of betting heavily on the wrong industry.

Comments

Post a Comment

Popular posts from this blog

  From article What 10 Years of U.S. Meddling in Ukraine Have Wrought (Spoiler alert: Not democracy). Aaron Mate. April 30, 2024. Section 2. Seeking to capitalize on the unrest in Ukraine in 2013, U.S. figures including State Department official Victoria Nuland, Republican Sen. John McCain, and Democratic Sen. Chris Murphy visited Maidan Square. In a show of support for the movement’s hardline faction, which went beyond supporting the EU trade deal to demand Yanukovych’s ouster, the trio met privately with Tyahnybok and appeared with him on stage. The senators’ mission, Murphy said, was to “bring about a peaceful transition in ukraine.” … The Maidan Movement’s most significant U.S. endorsement came from then-Vice President Joe Biden. “Nothing would have greater impact for securing our interests and the world’s interests in Europe than to see a democratic, prosperous, and independent Ukraine in the region,” Biden said. According to Andrii Telizhenko, a former Ukrainian...
Read more
Image
  List of U.S. websites China blocks. Google search: Many international news websites, such as the BBC, CNN, the Wall Street Journal, TIME, the Financial Times, Reuters, and the New York Times are banned. Most Western social media apps – including Facebook, X (formerly Twitter), Instagram, Snapchat, Reddit, AO3, Tumblr, and Pinterest – are blocked in China.
Read more
  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 1 Introduction Chapter 1 of 36 Ten Principles of Economics Section 2 of 14 … Like a household, a society faces many decisions. A society must find a way to decide what jobs will be done and who will do them. It needs some people to grow food, other people to make clothing, and others to design computer software. Once society has allocated people, as well as land, buildings, and machines to various jobs it must also allocate the output of goods (and services) they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Ferrari and who will ride the bus. … Because resources are scarce the management of society's resources is important. Scarcity means society has limited resources and cannot produce all the goods people want. Just as each member of a household cannot get everything they want each individual in a society cannot attain the highest standard of l...
Read more