| One
of the basic principles of investing in
the stock market is Risk and Reward. The
higher the potential return, the higher
the risk (as a general guideline).
Today, the internet is one of the
driving forces in the market, and the
internet stocks are also among the most
volatile. When you think of fast moving
(either up or down) stocks, technology
is what comes to the minds of most young
investors. But how fast moving are some
of these technology companies?
Hewlett-Packard
(HWP) received a market valuation of one
billion dollars forty-seven years after
going public. Microsoft (MSFT) took only
fifteen years to reach that same
benchmark. Yahoo (YHOO) received a
market valuation of a billion dollars in
only two years.
For the first few
months, Yahoo. s
stock rarely went over five dollars
a share (all prices are adjusted for
any splits that took place. After two
years, the stock was at around fifteen
dollars a share (in other words, it
tripled). The highest point Yahoo. s stock
has ever been was well over
240. Currently it. s around 133. These
are huge price changes, and they
all took place over relatively short periods
of time. If you bought Yahoo at
five and sold at 200, you. re rich.
If you decided to follow the crazy
and jump on after it already started rising
sharply, you didn. t do as
well. If you bought it at 240, you.
ve lost a lot of money.
Yahoo is just one
example
of a volatile internet stock. While Yahoo
performed phenomenally, others didn. t
do quite as well. Over
half of today. s start-up internet companies
go bankrupt in less than a
year (with more going bankrupt after that).
If you put some money in a random new
internet stock, you could lose it
all. That. s a pretty big risk. On
the other hand, if you pick the right internet
stock, you could double, triple,
or quadruple your money (or maybe
even more). That. s a pretty big
reward.
Internet stocks tend
to go up and down very quickly, and
the Risks and the Rewards are enormous.
If you can pick the next Yahoo, great,
but don. t invest anything
in an internet stock that you can.
t afford to lose either
temporarily or permanently (high risk
stocks can go up and down very quickly,
and it might just take a while to recoup
losses).
Some
people are getting rich off the internet;
you could too. But every investor must
ask themselves if they can handle and
afford the risk. You could pick a dud
stock and lose all your money, but on
the other hand, you could pick the next
Yahoo, Ebay (EBAY) or Amazon (AMZN) and
become a multi-millionaire. Are internet
stocks for you?
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