Saturday, September 09, 2006

Investing in unproven yet sexy business

Historically, stock markets behaves differently from usual human behaviour whereby market participants feel happy to buy while price is on the rise while holding back from participating when prices are falling.

This phenomena guides the prices of many unproven but yet sexy business. Ignorant market participants listen to what the investment managers say and drive up the prices of businesses which still have not earned a single cent or not much. The only reason prices are driven up is because of the "growth estimation" that Wall Street presents. Only on Wall Street will charts be plotted on an upward slope.

Enron and Global Crossing are some examples where it ended up totally with nothing for investors. With Enron bankrupcy, there came the introduction of the Sarbane-Oxley rule to govern corporate honesty and disclosure.

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