Solved Financial Investing Assignment: 1. Malkiel In Random Walk Down Wall Street (Item 2 Herein) Says This: Only 4 Or 5 People In The World Can Do What Warren Buffett Does (Download Now)
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Questions Covered in the Solution
- Malkiel in Random Walk Down Wall Street (Item 2 herein) says this: only 4 or 5 people in the world can do what Warren Buffett does, consistently outperform the index over a long period of time. Write him a letter about Akre and Swenson…are these two of
the four?
2. What would happen if the tens of thousands of security analysts no longer did what they do. Would the markets remain as efficient as they are? HINT: Start with a very brief definition of market efficiency, using metrics and a few words of explanation.
3. You have already tasted finance theory in your core course, whatever version of Finance 101 you took wherever and whenever you took it. Discuss the relevance of ‘theory to practice’ in relation to Items 7 & Item 8 readings (herein)
4. State your prediction of WRORCYRE for 2017, 2018, 2019, 2020, 2021 with a brief justification. (Readings for Part 1__Q4 attached)
Also Read: Solved Financial Markets Assignment: Wells Fargo: Branched Out (Download Now)
Sample of Solution
Malkiel in Random Walk down Wall Street says this: only 4 or 5 people in the world can do what Warren Buffett does, consistently outperform the index over an extended period of time. Write him a letter about Akre and Swenson, are these two of the four?
Mr. Burton Gordon Malkiel,
Author of A Random Walk down Wall Street
Dear Sir,
As in the book A Random Walk down Wall Street you fortified the theory of efficient markets which explicitly fostered the hypothesis of Random Walk while discussing the returns in the stock market. It has been stated that, since markets are quite efficient in their essence, it is rationally impossible to outperform the market continuously. Whereas, arbitrate of any information is abruptly compensated by the inherent reaction of the market. Since the markets are directed by the invisible hand, they exclusively pursue integration of “Mean Reversion” in their performance and reverts towards the mean in long-run. Hence, in the long-run, it becomes impossible for any entity to continuously outperform the benchmark market. Furthermore, it has been proclaimed that the two approaches of predicting returns on the stocks are fundamentally limited in their implementation. The technical analysis which accentuates the past performances to predict future behaviors of the stocks is leveraged to justify the real patterns of returns. Since, the stock market is an imposition of human preferences, assumptions, and perceptions, the stocks follow a random, unpredictable path of returns.
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What would happen if the tens of thousands of security analysts no longer did what they do? Would the markets remain as efficient as they are? HINT: Start with a very brief definition of market efficiency, using metrics and a few words of explanation.
Market Efficiency is effectively relied on the distribution of information among the participants of the market. If there is no information asymmetry and all the participants may have the same level of information about the market, the markets would be considered efficient. Moreover, in the efficient markets, the reliable and accurate information can be realized to formulate strategic decisions without any preferential considerations. Furthermore, the efficiency of the market is also attributed to the different levels like that of Strong Efficiency, Semi-Strong Efficiency, and Weak Efficiency. Various levels of market efficiency have different implications.
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You have already tasted finance theory in your core course, whatever version of Finance101 you took wherever and whenever you took it. Discuss the relevance of ‘theory to practice’ in relation to Items 7 & Item 8 readings.
Since the human intentions are so diverse that their market interactions create wide range of possible realizations. It has been proved through significant historical events, like that of financial crisis 2008, that human beings are full of greed and can cross any ethical barriers to maximize personal interests (Trevino & Nelson, 2010). Since, the participants of the markets can take extreme positions which in essence, potentially increase the leverage in returns. Moreover, the process of continuous evolution of financial markets is exclusively dedicated to human preference and market interactions. Diverse market perceptions actually, create overvalued and undervalued stocks in the market. Hence, the vulnerability of the markets can be effectively realized from the human preferences.
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