Money. It makes the world go ’round. We feel safe when we have it and we are in a panic when we don’t. The majority of people I have come in contact with work to obtain it Monday through Friday 9-5 because everything they do, everything in this world, revolves around it. Most people really don’t know what it is besides the fact that it’s green, has the faces of presidents on the front and the different numbers printed on it can get one a good or have a service done.
Simply put, money is a medium of exchange. It’s value can fluctuate, but essentially buying a good or service valued at $1 means that when an individual exchanges or performs the good or service for $1, the $1 bill will hold it’s value until another good or service is desired.
When individuals obtain a larger amount of money that do nothing but sit in an account they would be smart to invest their money so it now works for them. The type of investment i’m focusing on specifically is stock trading.
The average investor is usually an individual who wants to put their money in a place where it will work for them, and if all goes well, this will occur at a substantial rate and size. While that is the ideal scenario, too many of these average investors become greedy and buy more shares than they can afford to loose. In essence they planned to make money, a common but dangerous mistake to make in the market. As it usually goes, the investor invests at a given price, buys more than he can afford to loose, hears a media report that the company is performing poorly, consequently the stock price drops significantly, the investor panics due to the report as well as the price drop, and then sells all he has to get what’s left of his money. The most important part of that sequence is to recognize the reason to get out of the market, which was the decrease in price per share caused by the media influence.
What the media says about a company has too much influence on an overwhelming number of people, causing a withdrawal from the market, the price per share to drop, and more people to withdrawal. “The stock price is the least useful information you can track, and it’s the most widely tracked.”(Lynch, Peter. 13) All of this is referred to as the Media Effect.
In a 1987 shareholder letter – a letter sent to investors by the top executives once a year to report company performance – sent by Warren Buffet to the investors of Berkshire Hathaway, Buffet describes the disastrous outcome of letting external factors influence your actions and the market as a whole. Buffet reports in the letter that “….[A]n investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace”(Buffett, Warren).
Recently JetBlue found themselves significantly decreasing legroom and adding bag fees to their costs in an effort to boost finances in any way possible to meet unrealistic analyst expectations. In an effort to save money to make JetBlue a more appealing company for investors they changed their appealing business plan, still having the most legroom in coach by one fourth of an inch (no longer the most in my book) and being one of the few airlines left without bag fees. They in essence hurt their company by trying to save it, all due to something someone said that should have been ignored.
Online brokerage firms such as TD Ameritrade, Scottrade, and E Trade make it all too easy to throw your money away making you your own broker and financial advisor. It is almost unheard of now a days for someone to have a broker or a financial advisor. There once was a time when you had to consult either of the two to make a trade in the markets. Such consultation would usually eliminate senseless trades that are not well thought out.
Baker, Gerard. The Wall Street Journal Online. Dow Jones and Company. Web. 2014
Bhattacharya, Utpal. Galpin, Neal. Ray, Rina. Yu, Xiaoyun. “The Role of the Media in the Internet IPO Bubble.” Journal of Financial and Quantitative Analysis. 44.3 (2009): Print.
Buffett, Warren. “Warren Buffett on ‘Mr. Market.’” Berkshire Hathaway. CenturyLink Center Omaha; Downtown Omaha, NE. 1987. Annual Shareholder Meeting.
Clarke, John (johnclarke06). “It’s interesting how a little hysteria caused by the media can have such a quick effect of the stock market.” 16 Oct. 2014, 2:48 p.m. Tweet.
CNN. “The Power of One Wrong Tweet.” Online video clip. CNN. CNN, 24 April 2013. Web. Nov 2014.
CNNMoney. “Warren Buffett’s investing advice.” Online video clip. Youtube. Youtube, 2 May 2013. Web. Nov. 2014.
Engelberg, Joseph. Parsons, Christopher. “The Casual Impact of Media in Financial Markets.” Rady School of Management. 66.1 (2011): Online Database
Lynch, Peter. One Up On Wall Street. New York, NY: Simon & Schusher Paperbacks, 1989. Print.
Mintlife. “The Market is Betting On QE3, but is that the Right Bet?” Investing. 2012. JPEG file.
Nicas, Jack. “JetBlue to Add Bag Fees, Reduce Legroom.” The Wall Street Journal 19 November 2014: Al. Print.
Pink Floyd. “Money.” The Dark Side of the Moon. Harvest, 1973. MP3
Yuzan, Rich. (richyuzon). “Who needs insider trading when one wrong tweet can effect the entire stock market in just 15 minutes?” 25 April 2013, 3:06 p.m. Tweet.