Stock Valuation - Essay Example

Stock Valuation Question Would you feel more comfortable owning index fund or individual stocks?I would be more comfortable owning individual stocks since they give investors a lot of benefits over owning index funds. To begin with, owning individual stocks gives an investor the ability to analyze the stock. After the analysis, one can decide whether to buy or sell, hold or move on to another company. Investors who own stocks know what they own every day, however, if you own a fund, an investor only gets a report after every three months on what their holdings are.

Those with own stocks also know that they will receive dividends or cash payments after every three months and good dividend paying stocks increase their payout every year unlike those who own funds who most of the time are not sure about what the dividends will be and instead have a default option to buy more shares. It is also easier to understand market volatility since the investor knows the company well, and this helps an investor to make a decision whether to buy, sell or hold their position.

Individual stocks also have lower costs than funds help one to diversify their holdings (Hayek, 2013).Question 2I would not be okay with the political risks that are prevalent in the increase among the BRISC countries since these countries include the emerging markets that need ample political stability to grow and mature. The political risk brings a lot of volatility in the stock market, as well as discourages foreign and domestic investment as investors prefer more stable markets that are easily predictable in order not to take so much risk.

Question 3Through negative correlation, the idea of hedging and diversification are elaborated. Since negative correlation tends to make two investments move in opposite directions, an investor is therefore advised to invest in both the investments in order to spread risks. It makes sense that, when an investor invests in those two investments, one investment loses value, the other one will gain value hence the investor must not lose everything at any particular point, but at least gain on some (Eric, 2013).

ReferencesEric. (2013). The Hottest Investing Trends and Bold Financial Predictions: Negative Correlation.Investing Answers , 1-2.Hayek, K. (2013). Eight Benefits of Owning Individual Stock Over Index Funds. InvestmentManagement, LLC , 1-2.y three months on w\fter every three months on west in the stock. fter