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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
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 dot.com bubble.
Unlike other investors who work on Wall
Street, Buffet operates from Omaha, Nebraska.
His firm Berkshire Hathaway has just thirteen
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.
In our own times, we have seen this occur with
the end of the dot.com boom at the dawn of
the millennium. This is not to say however that
the dot.com 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
dot.com 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.
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: www.oup.com/elt/profile 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.
- Spring '10