Introduction
Economists view stock as the original or initial capital of goods, equipment or money that investors bring into the business when it is being founded. Stock is however different from the assets of a business because the assets depreciate in value while stock doesn’t.
Stock also acts as security to the lenders of the business for example the creditors and the financial institutions. Investment on stock is so widespread and popular to many companies and many investors because of the belief that they have good returns especially over a long period of time.
Many companies have invested on stock believing that it has good returns. Most of the investors however are blind when investing and they do not act rationally especially while investing on stocks. This means that they always expect so much and tend to concentrate more on the returns without exploring all the risks involved in investing in stocks for a long period of time. These kinds of investors are said to be irrationally optimistic.
A good investment in stock will lead to high and profitable returns from equities and bonds. Stocks have a standard deviation throughout the investment period and this will affect the level of returns from equity. This means that their value change from time to time depending with the market for example stocks listed on stock exchange always have their values fluctuating and therefore their returns are so uncertain and unpredictable
Investors are always optimistic that investing in stock in the long run will lead to high equity returns because they will adjust to inflation levels and that as much as they are risky, they offer a high rate of return. This argument has been practically justified by the United States Markets and investors.
Over the past twenty years there United States Markets and even Markets in many other countries have invested in stocks and there have been high returns of equity of more than five percent with a consistency of almost twenty years despite all the risks involved. This showed that an investment in stock for a long time would overcome all the risks and be profitable. An investor can therefore argue that stock is a good investment in the long run
Most companies invest in stock because they believe that the returns from stock will be higher than the rate of inflation in the market and therefore there will be high returns. This belief has been justified by the constant real and high returns that have been experienced in many markets of different countries for example the United States of America and the increase in equity ownership over a long period of time.
As much as stock may bring low returns in the short run period, investors are still optimistic that long run period is the best period to invest on stocks because it overcomes any hindrances that would have occurred in the short run and that would have reduced the level of return of stock either in the short or long run.
Even though the returns from equity are very high and attractive , investors cannot rely on stocks to perform well as an investment even in the long run. The overall returns from stock is however less profitable than many other investment projects and therefore investors should explore other projects rather than be tempted to invest in stock by the high returns of equity
Conclusion
It is true that stock is generally a good investment for optimistic investors in the long run. It is however not advisable to concentrate on investment of stock solely because they are very risky and the long run is always not certain and the returns are probably not as much as and therefore it is advisable to invest on stock just when the market is profitable in enough to bring good returns even with the presence of risks