Article Reflection Example: Economics
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Article Reflection Example: 2 Articles
Article Reflection 1: Mr. Buffett on the Stock Market
The article written by Patricia Sellers first highlights the fact that investors now tend to expect a lot about stocks and the drastic fluctuations. In this sense, the author infers that the findings do not predict any market fluctuation. However, Sellers tries to argue and discuss the current and historical stock market fluctuations by giving solid examples from the past. Primarily, the author claims that regardless of emotional market fluctuation, the shares will often remain in the real value of the organization sooner or later. The author continues to expand more on the topic by giving an explicit definition of investing, what it meant in the past, and the current conjuncture. Subsequently, Dow Jones Industrial Average, Fortune 500 company expected and actual values, U.S. Horse Population, and the comments of Bezos on Warrant Buffett have been given as instances to highlight the author's points.
Also, Seller argues that stock values did not increase proportionally with the increase in overall GDP. In other words, she believes that although GDP has increased by %370 within 17 years of period, the total value of a company did not increase that much. In this sense, the author highlights the contradiction between the mentioned elements and signals the interest rates as a grounding factor. The article then continues to list a few pieces of advice for investors who aim to make a profit in the stock market. Firstly, the interest rates must fall, and corporates should profit in relation to GDP. Expectedly, the second one is picking the apparent winners.
In addition, the authors concentrate a lot in historic and drastic market incidents and intrinsically recommends investors to analyze previous failures. Moreover, Patricia Sellers lists a set of advice to be considered for stock market investors who want to survive in hard times. The authors try to explain the imbalances and constant historical fluctuations in the market by relating to the then GDP and other indicators (Buffett, & Loomis, 2017). After all, one may readily highlight that picking the obvious winners in the stock market seems to be the most advantageous move.
Many of the examples in the articles are selected from the past negative incidents that may merely contribute to the authors' point. It seems that the authors subconsciously tried to create a pessimist mode by presenting the relevant data on company losses and collapsed stock markets. The good thing is that they do not foresee the importance of value investing and highlights already a few times. Also, the exampled incidents and companies are all American. Nevertheless, there exist many other exchanges in the world, and one may readily assume the fact that each exchange may have its characteristics and when considering this, Dow Jones and American GDP example does not seem to be valid. In other words, if an individual wanted readers to convince the other way, he/she can easily come up with related examples in history, and the article does not seem objective but directive.
Article Reflection 2: Facts about Formulaic Value Investing
The article written by U-Wen Kok, Jason Ribando, and Richard Sloan focuses highly on the value of investing. The authors highlight the fact that value investing is “now one of the most popular and enduring styles of investing” (Kok, Ribando, & Sloan, 2017, p. 81). According to the authors, “buying US equities that seem underpriced in light of simple fundamental-to-price ratios provides superior investment performance” (Kok, Ribando, & Sloan, 2017, p.82). Subsequently, the authors then continue to expand on the history of value investing by giving examples from Benjamin Graham, David Dodd, and Warren Buffett. The article then concentrates on the formulas used by major index providers, the performance of formulaic value investing, the identification of formulaic value, the interaction between formulaic value and momentum, and quantifying the benefits of a more detailed fundamental analysis further on the topic. Eventually, the authors concluded that major securities markets seem to be highly competitive. Also, according to the authors, the emergence of computers and financial databases enabled individuals to test the trading strategies that are based on simple valuation ratios, and thousands of such ratios have been tested. Although some of them have been proven profitable in certain conditions of the market, the others have not been as calculated in the measurements.
In addition, the authors focus on value investing by demonstrating the formulaic value-investing strategies that identify the stocks with temporarily inflated accounting numbers. Also, the author intrinsically warns investors about value traps that may result in huge losses. Eventually, the authors infer that a capable analyst should properly enhance the quantitative analysis by making use of Graham and Dodd-style analysis that secures the process a lot.
Overall, many of the formulas, graphs, and figures stated in the article seem to be considered valid, accurate, and authentic. In this sense, one may readily admit that the authors have worked a lot with the formulas to support their argument. Also, the historical evidence, along with the calculations, adds much credibility to the research. After all, one may highlight the necessity of further research on formulaic value investing, as the authors suggest.
Buffett, W., & Loomis, C. J. (2017, December 6). Mr. Buffett on the Stock Market (Fortune, 1999). Retrieved February 9, 2020, from fortune.com/1999/11/22/warren-buffett-on-stock-market/
Kok, U.-W., Ribando, J., & Sloan, R. (2017). Facts about Formulaic Value Investing. Financial Analysts Journal, 73(2), 81–99. doi: 10.2469/faj.v73.n2.2
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