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A very nice and short article on the complexity of financial inverstment and the components of risk, this article touches on game theory.
3 comments:
Anonymous
said...
Like the doctor in the article, investing in a risky market was a good thing. He bought when the stocks were cheap because the other investors were too scared to put money into something unsafe, but when the company grew the other investors followed making the stock price higher and the doctor richer. Now, more investors are willing to buy with more risk in order to beat out the other competition. In this case with homeownership, buying with risk was a bad idea. Owners who bought couldn’t afford mortgage, which dropped the price of houses. Sellers offering high and buyers offering low caused the market to shrink.
as the market continually grows more complex, it also becomes harder to predict. instead of buying risky stocks being a low risk/high reward situation, many investors are trying it, so the risks are greater, and rewards lower. then, when situations like the current housing situation arise, people can lose a lot of money.
It is definitely sure that in this era the economic risk is not determined by God, or the weather. Risk has grown so much more complex than in the past, and what people used to think it was safe, may not be so safe after all. The market just becomes more unpredictable with people investing in low risk stocks, but making them more vulnerable to becoming high risk. With other people making the decisions, investors do not know what to expect, and with everyone just wanting to get rich fast, the more that is invested the higher risk it has.
3 comments:
Like the doctor in the article, investing in a risky market was a good thing. He bought when the stocks were cheap because the other investors were too scared to put money into something unsafe, but when the company grew the other investors followed making the stock price higher and the doctor richer.
Now, more investors are willing to buy with more risk in order to beat out the other competition. In this case with homeownership, buying with risk was a bad idea. Owners who bought couldn’t afford mortgage, which dropped the price of houses. Sellers offering high and buyers offering low caused the market to shrink.
as the market continually grows more complex, it also becomes harder to predict. instead of buying risky stocks being a low risk/high reward situation, many investors are trying it, so the risks are greater, and rewards lower. then, when situations like the current housing situation arise, people can lose a lot of money.
It is definitely sure that in this era the economic risk is not determined by God, or the weather. Risk has grown so much more complex than in the past, and what people used to think it was safe, may not be so safe after all. The market just becomes more unpredictable with people investing in low risk stocks, but making them more vulnerable to becoming high risk. With other people making the decisions, investors do not know what to expect, and with everyone just wanting to get rich fast, the more that is invested the higher risk it has.
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