(PDF) The Psychology of Investing
Added on 2021-04-16
8 Pages2648 Words116 Views
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Investment psychologyInvestment decisions are largely influenced by human psychology. Investing goes behold rationality and statistics and decisions are made based on human intuitions (Yuniningsih, Sugengand Muh Barid, 245-263). Investments are important for enabling an individual to meet financial goals more easily. Investments generate income by putting forth an amount (something) with expectations of a higher return in a future time. Investments allow a person to create wealth and become financially independent (Nofsinger, 76). The investment decisions are characterized by uncertain stock markets, risky ventures, unpredictable environment, and changing business environment. Investors make decisions differently as they are influenced by behavior, mind, conscious, unconscious and thoughts. Investors’ make investments decisions with an objective ofincreasing their returns on investments (ROI) or getting the highest interests (Luthans, Carolyn , and Bruce, 321-340,). The stock market bull and bear impact investment decisions and it depends on human psychology to make decisions in these situations. The bull market is characterized with optimismthat leads to increased market rally increasing the stock price. The bear market on the other side is characterized with pessimism leading a decreasing stock price (McPhee, 107).The bull market make average investors greedy who buy many shares leading to the stock being overpriced. The bear markets rally everyone to fear a stock and sell their share leading to a fall in the stock price. The herd mentality when investing influences investors to think the same way and act according to a group instead of making independent investment decisions. The peaks and trough situations in investment happens regularly in the stock market. Prices keep changing and range from the highest price (peak) to the lowest price (trough) and require understanding the investment psychology to make appropriate decision in different times of price change (Kim et al., 140-154).The following write-up contains discuss for three companies that will be analyzed for investments. These companies are Alibaba Group Holding Limited, Apple Inc, and Tesla MotorsInc. This will involve analyzing their financial history, competitors in the market, past peaks and trough and reasons for buying their stocks both emotional and logical.
Alibaba Group Holding LtdAlibaba Group is a multinational ecommerce, Internet, retail, AI and Technology Company. The company through subsidiaries operates in four segments; cloud computing, core commerce, entertainment and digital media, and innovation initiatives. Alibaba provides business-to-business, consumer-to-consumer and business-to-consumer sales services through web portal. The company also provides electronic payments services, cloud computing and shopping search engines. Alibaba operates in more than 200 countries.Alibaba Group Holding Limited trades in New York Stock Exchange as BABA. The company stock price is US$ 172.07 as at 4th April 2018. The company had a total equity of US$ 48.33 billion at the end of 2017 financial year. Alibaba 2017 revenue amounted to US$23.82billion. The company revenue in 2016 financial year was US$22.96 billion which was 56% higher from 2015 FY. The stock price was US$121.27 in 2016 FY while 2017 stock price US$142. Alibaba main competitor is Amazon. Alibaba revenue grew from $3.14Billion in 2012 FY to $22.99 Billion in 2017 FY compared to Amazon that grew from $48 Billion in 2011FY to $135.99 Billion in 2016 FY. The Amazon’s revenue grew with 23% while Alibaba revenue grewby 48%. The Alibaba stock price increased by 79% from 2014 compared to Amazon that increased by 192% during the same timeframe.There are several reasons to buy Alibaba. First, the company revenues are increasing at a high percentage that will increase the net income leading to a higher dividends payment. There is an increasing trend for consumers to buy products online that leads to upward sales revenues. The revenue increased to $23 in 2017 from less than $11 billion in 2014. The company has a large scale of operation where the company managed $547 billion online shopping portals of retail transactions in 2017 and they are expected to increase by $1 trillion by 2019. Secondly, the exploding Chinese economy will favor the performance of Alibaba. The Chinese economy accounts for 86% of the Alibaba retail sales. The Chinese economy has a gross domestic per capita income of $3000 which is expected to grow to $13300 within 20 year. This is different to US which will increase by 28% at the same time. Third, Alibaba has diversified operations. The company is not all about retail but is also involved in other services such as digital media and computing tools. Fourth, the Jack Ma’s vision for Alibaba will drive sales up leading to
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