The World's Best Book Summaries
What is Markowitz’s theory about investment portfolios? How can diversification of stocks reduce risk? Harry Markowitz’s theory (Modern Portfolio Theory) suggests that the diversification of a stock portfolio can reduce risk. It asserts that a diversified portfolio—one that features holdings in a variety of industries and countries—is more likely to be profitable than a homogenous one. Find out more about Markowitz’s theory below.
What is the best method for predicting the movement of stock prices? Does technical analysis work? Technical analysis uses the past movements of stock prices to predict future prices. For example, if a stock has risen over the course of a day or several days, a technical analysis will show confidence in the stock. Technical analysts argue that stock prices tend to follow trends, meaning they can sometimes be susceptible to the irrational optimism of other investors. Does technical analysis work? Find out below.
Why do some people earn more than others? What factors determine a person’s pay? Labor—people’s time, energy, knowledge, and skills—is a scarce resource. Just like any other resource, pricing labor allocates scarce resources that have alternative uses. For example, paying engineers higher salaries than artists shifts people’s time toward engineering, where their output to society may be larger. In this article, we’ll discuss what determines a person’s pay and why salary inequality is the case.
Why do governments intervene in markets? Is government intervention good for an economy? When there is a market failure of some sort, governments often intervene to restore the economic system. However, if the government sets too many rules, or gets too involved in managing economic operations, it can destroy an economy. In this article, we’ll discuss three possible downsides of government intervention: 1) misallocation of resources, 2) rising costs due to regulations, 3) stifled growth, and 4) distorted incentives due to taxes.
What is the Straight Line selling method? How does it compare to the traditional, seven-step methodology? In his book Way of the Wolf, Jordan Belfort teaches the fours steps for Straight Line selling: 1) take control in the first four seconds, 2) build rapport, 3) gather information, and 4) presenting. Belfort recommends looping the conversation to determine what factors are holding the prospect back, then presenting again while addressing those concerns. Continue reading for full instructions on Belfort’s four steps for Straight Line selling.
How does wealth get transferred between countries? What are the implications of international wealth transfers for the participating economies? Transfers of wealth between countries take many forms. The primary wealth transfer channels include international investments (direct investment in stocks and bonds), putting money in a country’s banks, remittances from outside workers back to family, imperialists transferring wealth from nations they conquered (now more obsolete), and foreign aid. In this article, we’ll take a look at the economics behind the primary channels of international wealth transfer.
Can you get rich quick from stocks? How do investors determine which stocks are going to pay off big? The stock market has a reputation for allowing people to “get rich quick” by betting big on a stock that pays unexpectedly large returns. Unfortunately, this reputation is misleading. Although it certainly can happen occasionally—just as gambling in Las Vegas can occasionally make a person wealthy—the unremarkable truth is that get-rich-quick schemes usually fail because they hit two realities: 1) all information is public, and 2) people don’t typically undervalue their own stocks. Here is why getting rich quick off stocks
What is the purpose of financial markets? How does a financial market (such as a market for stocks and bonds) work? Financial markets are markets specifically designed for moving and managing money. This includes stock and bond markets as well as insurance markets. What other markets do for tangible goods, financial markets do for capital—essentially, they direct it to where it can be the most productive, which, in general, is where it’s earning the highest return. In this article, we’ll explore the economics of financial markets, explain the four basic needs they serve and discuss the common misbelief about financial
What are economic incentives? What are the key forces that drive the behavior of economic agents? Economics is based on the assumption that incentives drive the market. This means the incentives of both individual people and also individual firms, each of which are working to benefit their own particular well-being. In this article, we’ll explore the incentives of both firms and individuals and some ways in which incentives can work poorly, distorting the market instead of allowing it to function properly.
What exactly is a market? How does an economic market regulate itself given there’s no central authority overseeing its inner workings? A market is essentially a collection of billions of separate transactions that form a complex economy in which people can earn and spend money to fund their lives. A capitalist market functions cohesively, not because a centralized authority tells it what to do, but because each transaction works together efficiently. The paradox of the market is that while individuals use the market to increase their own individual well-being, in the process, they increase everyone else’s well-being also. In this