It is widely accepted that the stock market can be a very profitable vehicle for investment and certainly has benefits of its own, which will no doubt appeal to most of us. However, the benefits of stock market news are not always readily apparent to the average investor. For instance, what sort of gains are we talking about here with AMZN news?
Many people in the stock market world will tell you that gains come pretty quickly – in some cases within the first week of a particular stock market index’s performance. Others will argue that a week or two after a major event, like the failure of a major corporation’s stock, the market “reopens lower” (downward) than it opened, while others believe that investors “hold their cards until they want to cede them.”
The latter view is both an arguable point and a sad reality, as we have recently seen with the downfall and collapse of Enron. For the vast majority of us, the real benefits of stock market news are found in the long-term investment strategies that we employ. Strategies like diversification, which seeks to reduce the total risk of holding any one stock, are extremely important. Even with today’s low stock market price, the overall asset value of a stock portfolio is still quite substantial.
When a company makes a major acquisition or purchase and becomes more efficient at running business, the overall asset value of the enterprise rises. We call this added value to the bottom line. The benefits of stock market news regarding mergers and acquisitions are almost always an increase in the bottom line. While there is of course the potential for significant losses in certain transactions, the overall effect of mergers and acquisitions will almost always provide investors with a positive ROI.
This is not to say that there will never be disappointments in these transactions – the key is that with proper management, any potential downside is quickly offset by the eventual gains in profitability and equity.
Another of the benefits of stock market news that most investors overlook is the effect it has on the price of stock. In the face of strong stock market performances, companies that acquire other companies can boost their market price and create a buying frenzy among buyers.
The benefits of stock market news include the potential for significant upside as the combined company is able to implement more efficient business practices. As a result, the combined firm’s earnings per share (EPS) may increase due to higher profits. Any downside risks from the acquisition are usually offset by the overall earnings of the newly combined entity.
Finally, the benefits of stock market news can provide investors with a method of diversification. Diversification is important because it can reduce the risk of investment risk by spreading your risk over a larger population of stocks. Investing in large blocks of the same type of stock can lower the risk to your portfolio. By diversifying your portfolio across many different types of stocks like AMZN, you can help protect against fluctuations in one or even all of them.