Educational articles

Why Central Banks Raise Interest Rates During Supply-Driven Inflation

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When inflation rises because of supply-side problems, it may seem strange for a central bank to respond by raising interest rates. After all, interest rates cannot produce more oil, repair damaged supply chains, increase crop yields, or make factories reopen. If inflation is being caused by a shortage of goods and services, the obvious solution would seem to be fixing the shortage rather than making borrowing more expensive. However, central banks sometimes raise interest rates during supply-driven inflation because their …

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Why Companies Care About Market Capitalization

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Market capitalization is one of the most important measures of a public company because it represents the total market value of the company’s outstanding shares. It is calculated by multiplying the company’s current share price by the total number of shares outstanding. For example, if a company has one billion shares outstanding and each share is trading at $100, its market capitalization is $100 billion. Although this number is often used by investors to classify companies as small-cap, mid-cap, or …

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Can Passive Investing Cause Overpriced Stocks?

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Passive investing has become one of the most influential trends in modern financial markets. Over the past several years, investors have increasingly moved away from actively selecting individual stocks and toward index funds. These investment products allow investors to own a broad collection of companies while paying lower fees compared with many actively managed funds. Although passive investing has many advantages, critics argue that its rapid expansion has created new risks for financial markets. One of the strongest arguments against …

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Why did the Australian Market Lag the US Last Financial Year?

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The Australian stock market has delivered a relatively subdued performance during the last financial year compared with some international markets. While individual sectors have experienced periods of strength such as materials and energy, the broader market has struggled to build sustained momentum. This reflects a combination of domestic economic conditions, global uncertainty, sector-specific challenges, and the unique composition of the Australian share market. Unlike the U.S. market, where a handful of technology companies have driven much of the overall gains, …

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Does dividend stripping work?

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Dividend stripping is a strategy where an investor buys a stock just before its dividend is paid, collects the dividend, and then sells the stock shortly afterwards. In most cases dividend stripping does not work. For most individual investors, dividend stripping is not a reliable way to make money. At first glance, it sounds like free money, but in practice it rarely works that way. When a company pays a dividend, the stock price usually falls by approximately the amount …

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