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Technology Stocks : Internet Analysis - Discussion
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To: Reginald Middleton who wrote (130)2/8/1999 9:35:00 AM
From: BGR  Read Replies (1) of 419
 
Reginald,

Since both securities end up the same at the end of the year, you may or may not lose time value of money if you hold long term. For example, the 4 increases for the second security are not pre-scheduled and you may get them right at the beginning of the year (and nothing afterwards), hence earning time value. You just don't know the shape of the curve of the second security's appreciation whereas you do that of the first.

To give an analogy, if today you offer me a consulting job which will pay me the same annual salary (with irregular paychecks) as I presently get from my day job (which provides me with a regular, pre-determined, bi-weekly paycheck), I will almost certainly ask for more than my annual salary to compensate for the uncertainty.

Same issue with the two securities. Most novice investors do not depend on the market for their weekly expenses. Thus they may not differenciate between the two (although they most certainly do when it's comes to their day jobs, I know several of my firends who have traded a relatively high paying independent consulting job for a steady but relatively low-paying regular job) and may even prefer the second security for the volatility fix - which makes for great cocktail party conversations - that I have earlier mentioned. But for professionals it is different.

There is no upside risk as you have pointed out from the investor's perspective, only reward. But there is volatility and even when the deviations are always to the upside, the investor will usually demand a compensation for the ireegularity that deviations bring about.

-Apratim.
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