Information and Rational Expectations.
Part A. In Ch 13 they discuss about Information and Rational Expectations. You know there are informed traders in the stock market but you are uninformed. Describe what investing strategy that would guarantee that you will not lose money to the informed traders and explain why it works.
Part B. Find a reputable article on the web about how to make your market portfolio an effiecent portfolio (or how to win at the stock market). Describe the article (in a few paragraphs) and explain why or why not you think it might work. Post the website (url) of the article in APA format.
c) Using your company from Week 2.1, (tesla) look at the Balance Sheet and see what cash is there (list the name of the company and their Cash, and for what time period). Look to see if they pay any dividends – list what they pay if any. What should they do with the cash on their balance sheet now that you have reviewed ch 16 and 17? Explain your reasoning using the concepts from our book, and your knowledge of this company.
Sample Solution
One investing strategy that can be employed when dealing with informed traders in the stock market is known as dollar cost averaging. This investment technique involves spreading out purchases of a particular asset over time instead of buying it all at once. Doing so helps to reduce the risk associated with attempting to time the market and ensures that you are not left behind in case prices start rising quickly(Bouman & Davidson, 2017).
The reasoning for this approach is simple – when you purchase assets at regular intervals over a period of time ,you are able to take advantage of any dips in prices while also avoiding paying too high if markets move up suddenly (Kabiller et al., 2020). This in turn makes it more difficult for informed traders to benefit from short-term fluctuations since they will have no way of predicting what happens next which prevents them from profiting off your investments.
Additionally, dollar cost averaging allows investors to remain disciplined by taking the guesswork out of timing decisions thus helping minimize potential losses due psychological biases such as recency or anchoring effect (Bouman & Davidson, 2017). Furthermore, because each individual purchase incurs its own costs and taxes it reduces overall transaction fees compared to large lump sums which may help increase returns in certain scenarios (Kabiller et al., 2020).
