Stock Analysis

What Are the New Frontiers of Stock Analysis and Investment?

The stock market has changed a lot over the last decade.

The rise of algorithmic trading, electronic communication networks (ECNs), increased market volatility, and macro-economic forces have all reshaped how investors make their decisions.

In this article, we’ll explore some of these changes and what they mean for the future of investing.

1. The rise of algorithmic trading

Algorithmic trading is the use of computer algorithms to execute trades. Algorithmic trading has increased market volatility and reduced the role of human intervention in stock trading.

Algorithms allow investors to program their orders and execute them with minimal human involvement so that they can be traded at any time during the day.

As a result, algorithmic programs can place thousands of orders per second on stocks within milliseconds.

Algorithms are used by hedge funds, investment banks, and individual investors alike because they provide more liquidity than traditional methods such as open outcry floor trading.

They also allow traders to avoid paying high fees for executing large blocks of shares—the transaction costs associated with high-volume trades have been estimated at up to 2% per transaction.

2. The advent of electronic communication networks (ECNs)

In the early ’90s, electronic communication networks (ECNs) were introduced as a way to trade securities directly with other investors.

The ECNs provided a faster and cheaper alternative to traditional exchanges.

In 1998, Nasdaq launched its own ECN: SuperMontage, which was later renamed DirectEdge after being acquired by CNBC in 2007.

However, due to concerns about high-frequency trading (HFT), many of these ECNs went out of business in 2001 after the collapse of Enron and other incidents that caused many investors to distrust the markets.

After this event occurred, regulators stepped in with stricter regulations on HFT firms and brokerages.

3. The increase in market volatility

Volatility is a measure of how much the price of a security or asset fluctuates over time.

It is measured by calculating the standard deviation of returns, which can be done for any period of time (daily, weekly, monthly).

Higher levels of volatility indicate that prices move around more frequently than lower levels. In recent years, we have seen an unprecedented level of market volatility due to factors like Brexit and the election of Donald Trump as president.

In 2017 alone, we saw stocks fall by 10% or more twice—in February and August—and they rose by at least 20% twice during this period as well.

4. The increased number of global markets and exchanges

In the past, many investors were limited to investing in domestic markets.

These days, however, investing internationally is becoming easier and more accessible. The growth of international investing has been fueled by several factors:

  • The growth of mutual funds and exchange-traded funds (ETFs):

Mutual funds are investment funds that are made available to the general public for investment through financial intermediaries like banks or brokers at a price determined at the time of purchase.

5. The rise of macro-economic forces that impact stock prices, such as interest rates and inflation rates

The rise of macro-economic forces that impact stock prices, such as interest rates and inflation rates

Stock prices are affected by interest rates and inflation rates. Interest rates can impact stock prices in several ways:

  • By affecting the cost for companies to borrow money.

If interest rates go up, it becomes more expensive for a company to borrow money, which may make it harder for them to grow their business (and therefore their earnings). If a company’s growth slows down because of this, this will usually have a negative impact on its stock price.

  • By affecting how much investors expect dividends to grow in the future.

When companies pay out large portions of their profits as dividends (which they do), investors tend to view this favorably when they expect other sources of income—like capital gains from selling shares—to be less likely sources of profit growth going forward than dividend payouts.

However, if investors expect future dividend payouts to fall significantly dueling with higher expectations about future capital gains from selling shares then there may be downward pressure on stock prices dueling with upward pressure from expected rises in capital gains.

6. The growth of international investing

You can also invest in foreign stocks. If you’re investing in the U.S., you can buy shares of companies that operate all over the world, like Apple or Nike, which are listed on stock exchanges around the world.

You can also invest in companies listed only on foreign exchanges, known as international equities or emerging markets equities (if they trade on a developed market).

The growth of international investing is one of the new frontiers for everyone from individual investors to institutional investors. This has been driven by:

  • The growth of emerging markets such as China and India
  • A growing number of global companies operating across borders
  • The expansion into new asset classes such as commodities and real estate

7. The increase in mutual funds and exchange-traded funds (ETFs)

One of the most significant changes in the stock market over the past decade has been the increase in mutual funds and exchange-traded funds (ETFs).

These are similar to stocks, but they are managed by professional investors instead of being traded on a public marketplace.

The advantages of these investment vehicles include:

  • Access to investments that may not otherwise be available to you. For example, if you have limited financial resources and want to invest in emerging markets or small companies, ETFs could help you gain exposure without having to make large purchases or wait for many years for your investment returns.
  • Greater diversification than buying individual stocks can offer. This allows investors who don’t have much time or money available for research or trading costs (such as commissions) because they’re investing smaller amounts at once; some mutual fund companies also provide low-cost brokerage services through their partners’ networks if you sign up directly with them instead of just buying shares online through an intermediary such as Google Finance’s website.

8. The use of alternative investments, like hedge funds, private equity funds, and venture capital funds

Alternative investments include hedge funds, private equity funds, and venture capital funds.

These investments are complex and often require a lot of money to get in on the action.

But if you have access to alternative investments—and that usually means being a high net worth individual (HNWI) or an institutional investor—they can be a valuable asset class to your portfolio.

Alternative investment strategies look at different types of assets than traditional stock analysis and investment; they focus on things like distressed debt, distressed equities, and distressed companies.

This is where the term “alternative” comes from: these are not stocks or bonds in any traditional sense; they’re much more complicated because they’re invested in businesses with unique risk factors, whose value depends on how well the underlying business performs over time.

9. The rise of institutional investors like pension plans, endowments, foundations, etc.

If you’re an individual investor, it’s not just the big names that matter anymore.

In recent years, institutional investors have become more active in their investments and are increasingly playing a role in the stock market. There are many reasons for this.

The first is that there has been a rise in institutional investment over time as pension plans, endowments, and foundations have grown larger.

As these institutions have become larger and more sophisticated in their investing strategies, their influence on the market has grown accordingly.

10. The growth of online investing sites

Online investing sites have made it possible for investors to trade stocks from their homes, and they offer numerous advantages.

You can set up automatic investments in your portfolio without having to make a trip to the bank.

Online trading is also more cost-efficient than traditional brokerage houses, which typically charge high commissions for each transaction. Many online stock brokers even provide real-time quotes and news on individual companies so that you can research your investment choices before making any investments.

Bottom Line

The bottom line is that stock analysis and investment are constantly evolving.

As technology advances, more data becomes available, which in turn drives more sophisticated investment strategies.

The growth of institutional investors also has a significant impact on how we invest. These trends will continue to shape our world as we move into the future.


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