Question

In: Accounting

If most of investors are Irrational Investor (who don't use information well and use their emotion...

If most of investors are Irrational Investor (who don't use information well and use their emotion in making decision)

Is Financial Information is necessary?

If yes, why? And how to make financial information as primary decision determinant?

If no, why? And how to make it necessary for irrational investor?

Solutions

Expert Solution

The reason most of the investors are irrational in making investment is lack of finance knowledge. They are driven my their emotions so are their investments, But the Financial market doesn't operate on emotions.

Investment is done with the objective of making profit out of the investments, to achieve the objective, understanding of financial information is paramount.

Alot can be derived and conclusive decision can be made out of financial Information such as profit and loss account, balance sheet and cash flow statements. It shows if the company is doing good or not in terms of making profit , are they able to pay of their debts on time? Net worth of the company, dividends paid in recent years etc.

We can use financial different financial ratios to evaluate the company like liquidity ratio, profitability ratio, solvency ratio. All these are the parameters on which investment decision should be made.

With the help of financial information one can improve the chances of getting a good return on their investments rather than just going blindly with emotions.

We can make financial information necessary for an irrational investor by educating them financial information. How to read financial information and what change it brings to their vision before investing.

A well prepared investor always has an upper hand over an emotional investor.


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