Question
1. Tom was having coffee with two of his old school friends, Willie and Simon, and the conversation turned to the share market. Both Willie
1. Tom was having coffee with two of his old school friends, Willie and Simon, and the conversation turned to the share market. Both Willie and Simon said that they had bought into Slick Oil Company when the price per share was 25 cents and now the shares were worth $30 each. Wow, said Tom. Thats for me. Ill buy some! Willie said that the shares were still on the rise even though the company had not paid a dividend yet, and that the company was sure to declare a distribution soon. Simon said the priceearnings ratio was about 120 to one but that was not really anything to worry about as it was a growth stock and did not need to worry about earnings in the short term. Required: a) What sort of investor behaviour do you think Tom is showing? (2 marks) b) What sort of investor behaviour do you think Willie and Simon are showing? (2 marks) c) What advice would you offer to the three friends? (4 marks)
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