Wednesday, October 11, 2006

Newton's Laws

The first law states that the bodies remain at rest or in uniform motion untill and unless any external force is applied to it. Professor Aswath Damodaran of the Stern School of Business at NYU has different opinions altogether. According to him momentum shopping in stocks is much more riskier. He explains "Momentum stocks have an average beta almost twice that of the rest of the market ... and are much more volatile." In 1990's stockholder believed in this momemtum, which was like having a lucky charm etc. The consistent, sustained growth was considered to last uptill eternity. But the times are changing, with people realizing the concept of life-cycle in industry as well as companies.

Coming back to Newton, the second law states that the force needed to change the state of rest or of uniform motion, is equal to the rate of change of momentum. In these term I guess the news and all are like blows to the change in momentum.

In terms of acquisitions, following the same logic as buying of stock.( For the newcomers on the train, whether you buy companies or stocks, your objective is to buy underpriced stock with high intrinsic values and higher short term return..mostly) .


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