249 Outcome: Risks and Rewards
What you’ll learn to do: identify the potential risks and rewards to businesses and individuals associated with the issuance, purchase, and sale of securities
The trading of securities is a primary source of wealth creation for both businesses and individuals. However, with the opportunity for financial gain also comes the peril of loss—risk versus reward. On May 18, 2012, Facebook made its IPO (initial public offering) of stock in the social media giant. When the markets opened that morning and individuals were able to “own” a piece of Facebook, a single share sold for an average of $42 per share. Sounds like a great deal to be one of the first to have a financial stake in the premier provider of social media—less than $50! By September, 2012, that same share of Facebook was selling for approximately $21—a loss of 50 percent of the initial investment. It took more than a year for the share price to rise back to the IPO price of $42. How can such a “sure thing” go so badly? There was a series of unfortunate and unseen events that led to this disastrous IPO, but those events only serve to underscore that, even with the “sure thing,” where there is reward there is also risk. In this section we will explore some of the potential risks and rewards to businesses and individuals with the issuance, purchase, and sale of securities.
Learning Activities
The learning activities for this section include:
- Reading: Measuring Return
- Reading: Measuring Risk
- Self Check: Risks and Rewards
Take time to review and reflect on this activity in order to improve your performance on the assessment for this section.