Price of Stock Should We

Price of Stock

Should we or should we not pay the same price for the stock and why or why not?

In the presented scenario, it is unclear if the investment guru Bobbie B. Beebee is advancing towards retirement. Both investors are clearly wealthy but if Beebee's friend is older it might be better for the prospective retiree to purchase preferred stock, as it pays a guaranteed dividend. "Preferred stock is usually issued with a $100 par (face) value" ("Preferred vs. Common Stock," Ameritrade, 1999). However, given that both individuals are interested in future dividend growth, it seems unlikely that either of the individuals in question is looking at at&T preferred stock.

Both Beebee and the speaker have a similar investor profile. They are both wealthy and have money they can afford to lose. Both investors can risk of some of their savings to make a gain. However, if someone is facing retirement, no matter how wealthy, he or she may wish to have a more secure guarantee of seeing a quick return on their investment, as well as be seeking a more stable investment. Someone who is wealthy and young can afford a short-term loss, with an eye upon long-term gain, but even a wealthy investor rapidly approaching retirement should have his or her eye on the likely performance of the stock in the upcoming next two years, when the money in hand will be of greater use than to someone merely wishing to save.

Thus, when assessing how much the stock will cost these investors their likely needs for the dividends yielded should be taken into consideration, and this may provide a different answer for the two financial profiles in question. In terms of risk, the scenario presumes that Beebee feels he can predict the exact performance of the stock in the future, based upon his formula. at&T was long considered a high-performing stock, with stable long-term growth, and although its reputation wobbled during certain periods of its history, such as when it was declared a monopoly and broken up into many smaller 'Baby Bells,' its recent merger with Cingular Wireless seems to bode well for its long-term stable growth. Telephone, wireless, and internet communications is becoming increasingly critical to simply live and function in modern society and commerce. However, the volatility of the industry might make certain aspects of investing in any telecommunications company dicey -- competition is likely to be fierce in upcoming years, and also a new form of technology developed by a rival company might weaken at&T's competitive edge. Not even the most perfect formula can predict changes in technology or a new regulatory environment that may affect the price of a stock.