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Features
- Are Investments in Innovations Worthwhile? - Editor, 25 June 2008 - No Comments yet
- Could the Liquidity Theory Work for You? - Editor, 23 June 2008 - No Comments yet
- A Look at Market Capitalization - Editor, 17 June 2008 - No Comments yet
- Random Walk Hypothesis - Editor, 16 June 2008 - No Comments yet
- Understanding Reverse Stock Splits - Editor, 9 June 2008 - No Comments yet
- Differentiating between Cyclical and Non-cyclical Stocks - Editor, 5 June 2008 - No Comments yet
The ultimate goal of innovation is to implement positive change, and innovation is an important factor for the increase of wealth in an economy. However, often the financial benefits of innovation are only realized in the long term. This can be a problem for a management team that is focused on appeasing investors above all else and are, therefore, driven by quarterly results. They may be reluctant to invest in innovation, no matter how promising, for fear of negatively impacting on short-term financial performance.
The liquidity theory asserts that the stock market is no different from any other market in that it is all a matter of supply and demand. The liquidity theory claims that stock prices are determined by the number of shares in the stock market, together with the amount of money available to buy them, irrespective of what their fundamental value may be. Stock market liquidity trends are analyzed and the information is utilized to predict in which direction the market is headed.
A public company’s market capitalization (also referred to as market cap) is the total market value of its outstanding shares i.e. all issued shares in the hands of investors. This measurement of corporate or economic size of a company is calculated by multiplying the number of outstanding shares by the price of one share, thereby providing a total value for the company’s shares, and therefore for the company as a whole. Instead of using sales or total asset figures to determine the size of a company, investors make use of market capitalization figures.
The financial theory known as the "random walk hypothesis" proposes that stock market prices develop according to a random walk and, therefore, stock market prices are completely unpredictable. This hypothesis is widely accepted by economists, investors and other financial behaviorists, who continue to believe that stock prices are random making it impossible to consistently outperform market averages.
A reverse stock split reduces the number of a company’s shares, which in turn increases the earnings per share, while the company’s market capitalization remains the same. This makes the stock appear to be more valuable than before the split, when in fact nothing has changed. There are a number of reasons why a company may choose to undertake a reverse stock split, let’s consider some of them.
Although it is true that investors have no control over the cycles of a country’s economy, they are able to adjust their investing practices to cope successfully with the economy’s highs and lows. Having a well-balanced investment portfolio is dependent on an understanding of how industries are influenced by the economy before making stock market investments. For this reason it is important for investors to know the fundamental differences between cyclical and non-cyclical stock companies.
Recent Videos
- Video: Final Word - Market Close 10.10 - Friday 10 October 2008, 9:00 pm
- Video: Investment Strategies: Markets Are So Irrational, They're Uninvestable - Friday 10 October 2008, 8:21 pm
- Video: Latin American Market Check: Sao Paulo Bovespa Falls 10% - Friday 10 October 2008, 7:52 pm
- Video: In-Depth Look: The Worst Week Ever for S&P 500 - Friday 10 October 2008, 7:32 pm
- Video: Inside Look: Too Little, Too Late? - Friday 10 October 2008, 7:03 pm
Recent Articles
- Authorities Hopeful That “Coordinated Emergency Rate Cut” Will Restrain Spreading Financial Crisis - Editor, Thursday 9 October 2008
- Markets Remain Edgy on Both Sides of the Atlantic - Editor, Wednesday 8 October 2008
- France to Host European Financial Summit - Editor, Friday 3 October 2008
- $700 Billion Plan Rejected as American Voters Voice Discontent - Editor, Tuesday 30 September 2008
- Are Investment Fees Eroding Your Investment? - Editor, Thursday 25 September 2008
Recent Comments
- 29 April 2008, 03:23 am: By Dhan - Take This Financial Planning Gift Horse...
- 25 April 2008, 12:58 am: By asiaconsult - The ‘No Comment’ Clue to Mortgage...
- 24 April 2008, 02:21 am: By Investa - How Your Financial Planning Can Benefit...
- 23 April 2008, 04:56 am: By Mint - A Stock on Which You Can Bank










