Question

Stock Market Recovers Half of Losses after Largest Dow Drop in History

LESTER HOLT, anchor:

Not quite orbit but another wild ride on Wall Street, today, dramatic swings as the Dow plunged again at the open, then rebounded before finishing up 567 points. So for everyone rushing to check those 401(k)s yesterday, you probably feel a bit better tonight. NBC News business correspondent Jo Ling Kent went down to the stock exchange to get a firsthand look at the volatility and what it means for your money.

JO LING KENT, reporting:

First, a plunge.

JIM CRAMER: You may be having a fake out.

LING KENT: The Dow is sinking 565 points at the opening bell. Just 24 minutes later, a surge into the green, up 367. Moments later, down again by 236. By the end of the day the Dow soaring 567 points at the close. What's happening here? What's behind this rally?

KENNY POLCARI: Yeah, you got a little bit of a-- a bounce back really as an opportunity. Yesterday the market sold off. A little over four percent was a really exaggerated move. Today once the market calmed down a little bit, you've got opportunistic trader types that are running in and buying stock.

LING KENT: Traders say the large swings are driven by expected interest rate hikes, political uncertainty in Washington, and automatic trading set off by computers.

ART CASHIN: If you get a high-volatility sell-off that we had one for to two straight days, Friday and then again Monday, the market zigzags back and forth.

LING KENT: In Washington, Treasury Secretary Steven Mnuchin downplayed the wild swings.

STEVEN MNUCHIN: We're monitoring the stock markets. They're functioning very well. And we continue to believe in the-- the-- the long-term impact of the stock market.

GREG ROWE: I think it goes higher in the short term; there will be a big downturn, when it is nobody knows.

LING KENT: Financial adviser Elda Di Re tells her clients if the market's big swings are too much to take, they should reconsider where they keep their money.

ELDA DI RE: We all have to look at our own aversion to risk and have to be able to sleep at night. So your portfolio should reflect what you are comfortable with.

LING KENT: Lester, these swi-- these swings do seem quite dramatic. But in reality, today's gains and losses were about 2%. And remember, it is normal for stocks to drop during bull markets. And it has been a long time since the last market correction, about two years ago.

HOLT: I guess heart rates starting to return to normal right about now.

LING KENT: That’s right.

HOLT: All right, Jo Ling Kent. Thank you very much.

question 1.Given how he invested, do you think his view of financial markets was more in line with the efficient market hypothesis, or behavioral finance? Explain. 2. What value do you think there is to Mr. Buffet of giving away 85 percent of his wealth?

Answer 1

Ans.

1. The view of expert is in line with efficient market hypothesis and less with behavioral finance.As in efficient share market hypothesis it is believed that nothing can go up or down for eternity,here as we know that market was in the middile of a long term bull market and in a bull market a fall of 2_5% or even more are considered to be good for the health of market.

The market has a way of shaking week hands in the market and if there is a fall of few days in the market it will give an opportunity of people waiting on sidelines to invest. The view of expert got further strength from the fact that market exhibited perfect signs of recovering from opening lows and closing in positive,so it can be said that view of expert are based on perfect market hypothesis.

2.Warren buffet is one of the richest individual and greatest philanthropist He built his company Berkshire Hathaway to be one of the biggest giobal investment company.

In the year 2006 Buffet announced donating 85% of his wealth towards charity work of bill and melenda gates foundation.He publicly urged the richest people of the world to donate generously at least half of there wealth towards philanthropic causes.

At a time of uncertainty in the global financial markets particularly in American market .Warren buffet announcement of donating 85% of his wealth and even increase it to 99% in later years is a prime example of ethical business practices for present as well as future generations.

His commitment to patience in the market together with his brilliant business sense .led to generation of wealth .

Warren buffet found ways to earn profit and remain ethical at the same time. His act of donating 85% of his wealth was highlighted by newspaper in 2006 as a historical act which put Warren buffet at among the top of the list along with great industrialist of united states.