Question

A good friend of Dave Sampson informed him that the company he works for will announce a new product that will revolutionize the industry the friend works in. Dave is very excited about the prospective jump in the stock price. He is ready to buy some stock in the friend’s company. Advise Dave on this course of action.

Answer 1

Answer:

My advice is " Dave, don't be silly. just because someone say something don't invest your money. Its more like Gambling than Investing. Look at the company as a whole, rather than looking at only one product and announcement. then Move on with your investment."

Explanation:

Stocks are a great way to invest and make wealth. But also it is one of the riskiest. Because you can lose the initial capital invested if the stock you buy performs poorly and price go down. Stock prices are affected by a variety of factors such as,

1. The profitability of the company
2. current financial position of the company
3. Industry competition
4. Government and legal interventions
5. technological factors
6. the overall performance and the conditions in the National Economy

It is unwise to "Speculate" as Dave is excited about the "perspective jump". What if it doesn't "Jump" and instead "fall down"? Speculation is not Investing, its just gambling on luck.

So, what he should do is he must study the Financial statements, Take a good look at the Annual Report and paying attention to the industry in which this company operates in.

he gotta understand the business and then make a move to buy the shares or not.