investment - ProFile 2 UNIT 11 Investment FORTUNE AND FOLLY...

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Unformatted text preview: ProFile 2 UNIT 11 Investment FORTUNE AND FOLLY In this section we will look at a few of the heroes and villains of the world of investment, and examine a few examples of what happens when investors lose touch with common sense and reality! WARREN BUFFET Mr Buffet is arguably the most successful investor of all time. He bought his first shares at the age of eleven and make a $5 profit. Since then, he has built up a $36 billion fortune through cautious investment. He never buys shares in businesses he knows nothing about, and did not invest in the bubble. Unlike other investors who work on Wall Street, Buffet operates from Omaha, Nebraska. His firm Berkshire Hathaway has just thirteen full-time employees. ROGUE TR ADERS AND MISTAKES Wall Street Crash of 1929, most share values no longer bore any realistic relationship to the businesses they represented. Spectacular bubbles from history include the South Sea Bubble of 1720 (in which Isaac Newton lost £20,000). Perhaps the strangest of all, was the bubble which resulted from the Dutch love of tulips where fortunes changed hands in a collective mania to purchase certain bulbs. DOT.COM In our own times, we have seen this occur with the end of the boom at the dawn of the millennium. This is not to say however that the industry has faded out of sight. It still remains a potential investment area for those who are willing to risk their savings in such a new and untested field. Indeed, we have seen in recent years that many of the iconic businesses have started to enjoy their first annual profits after years of work and large-scale investment. In big financial capitals such as London, talented fund managers who are able to pick the right companies to invest in have a formidable reputation and the salaries to match. However, the field where probably the most money can be won and lost is in the currency and commodity markets. Traders in these fields have traditionally had considerable independence, which can lead to disaster. Nick Leeson’s involvement in the collapse of Baring’s Bank is the most famous of these. BUBBLES However, financial disaster can occur through a change in public mentality, as much as through the actions of a few individuals. Investment bubbles occur when people lose sight of reality in this way. A collective madness makes normally sensible people invest, ignoring the experience of previous bubbles. What normally happens when a bubble bursts is that a rumour starts a panic where everyone wants to sell. Just before the See the ProFile Student’s site: Photocopiable © Oxford University Press ...
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This note was uploaded on 12/12/2010 for the course RBS BCN taught by Professor Dekoe during the Spring '10 term at Rotterdam Business School.

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