Short Sighted stock market and managers concern

Essay by umairanwar71C+, August 2006

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"A general term used to refer to the organized trading of securities through various exchanges and through the over-the-counter market. A "stock exchange" is a specific form of a stock market, a physical location where stocks and bonds are bought and sold, such as the New York Stock Exchange, NASDAQ or American Stock Exchange" [1]

I agree to the statement that "Stock market is short sighted that it only cares about the next quarter's performance". As the writer has explained the view by using the equation for constant growth stock that is also called Gordon model after Mayron J. Gordon.

P0 = D1/ ks - g (Eugene, 2002)

The rate of growth varies from organization to organization and the organization's progress overall in earning revenues and making position in stock market. It also differs if the organization is publicly owned or just few management hands are controlling it. Some organizations are not at such big scale to be publicized.

When the shares are bought and sold in the market, there is always a risk in returning of the money invested by the owners of the company's stock. The expected rate of return on the stock depends on the expected dividend and expected capital. Unlike the equation for rate of return for stock there is also another unexpected situation that is called supernormal growth stock which is earned back very fast that is even faster then what is going on in overall stock market. The supernormal growth rate of an organization can be in special situations for example if the company is merged with another company with more solid position in market or if the company introduced its new product line. In the beginning the growth of the company is very fast in term of stock valuation and it grows...