Stock Markets The Castle in the Air vs The Firm...

Market Theories Investments Seminar Table of Contents Introductionnbsp;nbsp;nbsp;nbsp;nbsp;3 Castle in the Air Theorynbsp;nbsp;nbsp;nbsp;nbsp;3 Firm Foundation Theorynbsp;nbsp;nbsp;nbsp;nbsp;3 Effects of the Marketnbsp;nbsp;nbsp;nbsp;nbsp;3 Market Theoriesnbsp;nbsp;nbsp;nbsp;nbsp;5 The Tulip-Bulb Crazenbsp;nbsp;nbsp;nbsp;nbsp;5 Today’s â€Å"Tulip-Bulb† Craze, the Dot-Com Crashnbsp;nbsp;nbsp;nbsp;nbsp;5 Conclusionnbsp;nbsp;nbsp;nbsp;nbsp;6 Introduction Castle in the Air Theory The Castle in the Air theory was introduced by John Maynard Keynes, an well known economist and successful investor of the 1930s. It was Keynes’ theory that the keys to investing came from supernatural or psychic means.†¦show more content†¦Firm Foundation Theory The firm-foundation theory speculated that each tool used for investment (stock, real estate, etc.) was directly related to intrinsic value. Intrinsic value could be determined by carefully analyzing present-day conditions and future speculations. It was determined that when market prices fell below or rose above this firm foundation a buying or selling opportunity would come about. Quite simply it became a matter of comparing the actual price with its â€Å"firm foundation† of value. As stated in our text, the classic developer of this technique came from John B. Williams, a mathematician and financial writer. Williams’ formula for determining the intrinsic value of stock was based on dividend income. He introduced the concept of â€Å"discounting† in order to determine this value. It was his belief, according to our text, that the intrinsic value of a stock was equal to the present or â€Å"discounted† value of all of its future dividends. In other words a stock’s value should be based on the earnings a firm will be able to distribute in the future in the form of dividends. At this point, future expectations have to be included which would of course entail more intricate calculations. The overall issue with the firm foundation theory, as pointed out in our text, is that it relies on difficult forecasting towards the extent and duration of future growth. Effects of the Market Overall all both of the above mentionedShow MoreRelatedBodie, Kane, Marcus Study Guide Essay40928 Words   |  164 Pagesinvestment types, the markets in which the securities trade and to investment companies. In this chapter the student is introduced to the general concept of investing, which is to forego consumption today so that future consumption can be preserved and hopefully increased in the future. Real assets are differentiated from financial assets, and the major categories of financial assets are defined. The risk/return tradeoff, the concept of efficient markets and current trends in the markets are introducedRead Morepaul hoang answers72561 Words   |  291 Pagesbetter known multinational companies with wellestablished customer networks. 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