Investments: Stock Selection on March 9, 2009 Essay

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Investments: Stock Selection

On March 9, 2009 the stock market settled on a 12-year closing low with the Dow Jones Industrial Average (DJIA), a barometer of the economy and stock market trajectory, closing at 6,547.05. (Twin, A. March 9, 2009). The precipitous plunge for the DJIA from an "all-time high of 14,164.53" (Twin, A. October 9, 2007) reached on October 9, 2007 marked the timeline of the country's worst recession since the Great Depression. From the historic lows however, the market has rebounded dramatically closing at 12,105.78 on February 23, 2011, a gain of over 75% from the March lows (CNBC.com. February 23, 2011). The vicissitudes of the stock market over the past three plus years limn the debate over whether an investor who is risk averse would choose to invest in a stock market in which all stocks rise and fall together, or a market in which individual stocks move independently of one another.

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In framing the question the assumption is "ceteris paribus" (all things being equal), which leads to the understanding that in either economy total return and volatility of stocks is identical. When discussing the risk-averse investor there is an inveterate image of the senior citizen who believes that the mattress may be the best place to secure their nest egg for retirement. After the swings of the last three years in the market, one could certainly understand this position. Yet, risk-averse is not to be confused with a lack of astuteness or understanding of the intricacies of investing.

Investors are marked by two extremes, the active investor who tracks, analyzes, and disseminates information on the companies in their investment portfolio, the economy, and global financial news which may influence the direction of their stock investments. At….....

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