The mention of conservative investing and what you often get is people who think it means the money goes to the biggest, most stable businesses, which in turn guarantees the security of the principal. If the invested capital also appreciates value, even better. While it is true that businesses (for example, utilities) are defined as conservative, simply buying large, well-known companies does not meet the goal of a successful conservative investment approach. Instead, this view increases the confusion between conservative action and traditional behavior.
Conservative investing, when understood and applied properly, is not a low risk, low return strategy. Investors must understand two definitions in order to evaluate suitable funds for conservative investment.
Where many investors hesitate in trying to invest conservatively, they blindly believe that by buying any security that qualifies as a conservative investment, they are in fact conservative investors. In other words, such investors simply focus on the first definition.
This point of view is limited and costly. A successful conservative investment approach requires not only an understanding of what constitutes a conservative investment, but more importantly, the right approach to determine what truly qualifies as a conservative investment.
If, based on the first definition, investors already know what qualifies as a conservative investment, one needs to know what characteristics define a conservative investment, where the second definition comes into play. There are three categories that investors can use to define conservative investments.
Being a low cost producer, the main benefit is that when a bad year hits the industry, the chance of making a profit or reporting a smaller net loss is available. Second, the business must have a strong research and marketing department. A company that cannot compete by keeping abreast of market changes and trends is doomed to a long-term outlook. Finally, management must have financial skills. At the same time, he will be well versed in such things as unit costs of production, maximizing returns on investment capital and other essential elements of business success.
"When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, the reputation of the business remains intact."
A small company can succeed on the heels of one or two exceptionally talented people. But as the business grows, people across the organization must be considered if the company is to succeed and remain a conservative investment.
Even when a company satisfies the obvious conditions of conservative investment, you should always keep this third condition in mind. The following examples illustrate this concept further.
Great examples of those companies that pass the test include names like Coca-Cola (KO KOCoca-Cola Co45.85-0.26% Created with Highstock 4.2.6) , Walmart (WMT WMTWal-Mart Stores Inc89. 16-0. 59% Created with Highstock 4. 2. 6) and Johnson & Johnson (JNJ JNJJohnson & Johnson140. 11 + 0. 02% Created with Highstock 4. 2. 6). These companies demonstrate again and again strengths their franchises. More importantly, these companies are likely to continue to have very favorable future prospects. Coke essentially competes with Pepsi and Dr. Pepper and no one else. What's more, it's unlikely that entrepreneurs are sitting in garages thinking about starting the next big soft drink company.
Since Walmart exists and is doing well, this should raise a red flag for most other retailers, with the exception of Target. Remember Circuit City, which used to be #2 at Best Buy in e-retail? Now it's bankrupt, thanks in no small part to Walmart. Of course, once the passing company has been identified, the price of the shares only matters in determining the resulting value.
Investing conservatively is not just about identifying large, well-known businesses, but the process that determines why a particular company qualifies as a conservative investment. And as you can see from the titles above, being a conservative investor can lead to some of the most reliable and respectable profits in the market.
»: definition of the concept, basic information
Aggressive investors are people with "iron" nerves. They are envied by many colleagues in the profession, they are idolized and feared at the same time. Such investors do not give a damn about the reliability of investments. This point is usually ignored. And they are only interested in the benefit - which needs to be squeezed to the maximum. And, of course, this definition can describe speculators. Their motto: strike while the iron is hot!
Aggressive investors make short-term investments, often no more than one or two minutes. Investment range: from 1 minute to 2-3 days. Purchase and sale valuable papers characterized by efficiency. An investor with such a “policy” can make up to a hundred transactions or more per day. The profitability of the aggressors is often up to 400% net profit. Moreover, such unrealistic figures are pure truth.
What is the downside of this approach? The downside is obvious - these are huge risks. In one moment, he can lose his entire fortune. The clearest example of aggressiveness in investments is.
To understand how aggressive investors work, you need to familiarize yourself with other types of investors. After all, it is impossible to know the small without a general picture of what is happening.
Such investors do not need extra risks. For them, reliability and stability is a sign of growth. Conservatism in this regard implies a relatively small profit, with an impressive probability of receiving it in principle. Everything is simple: the spool is small, but expensive ...
Conservative investors tend to buy the most reliable assets, and they choose a long period of time. This is the basic strategy of the "conservatives". Speaking of reliable assets, one cannot but mention the shares of such giants as VTB24, Sberbank and His Majesty Gazprom.
Conservative investors rarely make investments for a period of less than 2 and more than 20 years. It is the long term for them that is stability. As they say, you go more quietly, you will continue ... In our case, you will become richer. And this is true, because where there is a high investment period, almost always low interest risk.
One of the most famous conservative investors is Warren Buffett. His investments are always characterized long term, because the philosophy of this investor is this: he believes that it is unrealistic to benefit from holding papers for a couple of months. The average investment term of Warren Buffett is 10-12 years.
Here we observe something between an aggressive strategy and conservatism. Such investors try to save their investments as much as possible, but the return is also important for them. The bigger it is, the better.
The terms of investment here are much lower than in the case of conservatives, ranging from six months to 2 years. Such an approach can guarantee both moderate risks and possible moderately large profits.
An experienced investor is like a hardened wolf - he knows everything about the market and often hides under the guise of a conservative investor. An experienced "warrior" prefers risks, but they must be justified. The goal of such investors is to select the most liquid assets and securities.
Oh, those sophisticated investors! They, like amphibians, alternately put on the cloaks of conservatives and aggressors. Even with a clear threat of capital loss, they still want to get the highest possible profit. From the outside, it may seem that sophisticated investors do not have a nervous system. They are like machines operating at different speeds depending on the situation. By the way, such investors are not uncommon...
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So, the main part of the training course comes to an end. In this lesson, we will talk about a topic that is quite interesting, both from a practical and theoretical point of view: the features of an investor.
This material will allow you to better know yourself as a future or already established investor and, in accordance with personal characteristics nature, right, to adjust and carry out their own investment activities, but first things first.
Article outline:
The type of investor is a feature of the investor that shapes his behavior.
Investor behavior is shaped by a combination of several factors. For example, risk appetite, return requirements, investment horizon, a subjective view of a particular investment instrument, a particular company, industry, country, etc. In general, as you can see, there are factors on the basis of which investor behavior is formed a large number of.
So, let's look at what types of investors still exist. Investors can be classified according to the following factors:
This factor determines what risk / return ratio will suit the investor in the implementation of his investment activities.
According to this factor, investors can be divided into 3 types:
It is special in that it tries in every possible way to avoid the risk of volatility, that is, fluctuations in the value of investments, as well as other types of risk with which, one way or another, investment activity is associated. Some "instances" are so afraid of taking losses that any fluctuations in the investment portfolio lead to health problems.
To reduce risk, such an investor accepts a low return on invested capital.
Not ready to receive a minimum return on invested capital, only in order to minimize the risk. The reaction to fluctuations in the value of the investment portfolio of this type of investors is not as sharp as that of conservative investors.
The moderate investor invests in various asset classes, both equity and debt. This allows you to get a higher return compared to the investment portfolio of a conservative investor.
It has a high risk tolerance. That is, these are people who, by their temperament, like to take risks in order to achieve certain results, and this applies to any field of activity. In investing, they do the same thing - they take on increased risk in order to achieve high returns. The portfolio of aggressive investors consists predominantly of equity instruments when it comes to a passive investment strategy. If we are talking about an active investment strategy, then a variety of instruments are used (leverage, derivatives, and so on).
Investors of this type are characterized short term ownership, assets. They plan their investment activities no more than 5 years ahead.
A common type of investor in Russia, in view of the political and economic instability. This is especially true in the 90s, when in most cases it was about survival, but not about investing, in conditions of mass unemployment and default on obligations, both by the state and private companies.
This type of investor is the least numerous, especially in Russia where market economy only goes its own way of becoming. The term of ownership of investment assets is from 10 years. The reasons why this category of investors is not widespread are stated above.
Here the classification will be carried out according to the type of investment strategy used. and their varieties, we have considered before.
So, according to investment strategies, there are:
Earlier there was a lesson on investment strategies. In it, I examined in sufficient detail both passive and active investment strategies, as well as the advantages and disadvantages of each strategy and their features, but I will still briefly repeat.
An active investor is convinced that anomalies are constantly present in the stock market, and that most market participants are mistaken when valuing a company. This type of investor hopes that he will be able to correctly assess the potential of the company and purchase promising shares at a low price at the right time. Accordingly, active investors expect to constantly extract additional profitability from the situations described above.
The main goal of an active investor is to receive a return above the market average over a long period of time. He will achieve this goal by looking for a promising country, industry, and finally, undervalued stocks to buy them at low prices and then sell them at high prices. Of course, in order to fulfill their plans, an active investor must show the results of work higher than other market participants.
Agrees with the average return shown by the market. The passive investor does not try to outplay the professionals. He is convinced that the only way to win the "definitely losing game" is not to play it. It uses the principle of indexing in its investment activity. This principle involves the purchase of securities included in the stock index. That is, a passive investor uses diversification to his advantage and tries to maximize it. Owns investment assets for as long as possible (the term of ownership depends on the personality of the investor).
Investors may have different levels of knowledge in the field of investing, so they can be distributed as follows:
Low level of knowledge
Average level knowledge
Advanced level of knowledge
Low level of knowledge
Investors with low knowledge of investment activities are a common option, they mainly use the services of an investment advisor or broker to achieve a positive investment result.
Average level of knowledge
Investors with an average level of knowledge are less likely to turn to consultants and increasingly make investments on their own with the help of financial intermediaries (mutual investment funds, banks, brokers, etc.).
Advanced level of knowledge
Investors with an advanced level of knowledge, of course, do not turn to consultants for help in compiling an investment portfolio, they themselves can provide such services. Use all available investment instruments to implement their investment strategy.
So, the classification of investors according to various factors can be completed. Above, I have already mentioned the fact that investor behavior is formed due to a combination of several factors, and there are quite a lot of factors, so the behavior of investors varies quite a lot.
Well, for example, an investor may have an average level of knowledge in the investment field, be conservative, long-term and passive.
Or it can be aggressive, short-term, active, possessing an impressive amount of knowledge.
So, now I will give some recommendations for the types of investors discussed earlier. Recommendations will be of a practical nature on the distribution of assets in the portfolio of a passive investor. The choice of the ratio between debt and equity instruments is fundamental in investment activity, which must be made first.
conservative investor
For investors of this type, I can advise the following: if you cannot control yourself and take on some risk, you should allocate funds in an investment portfolio, naturally in fixed income instruments. The classic low-risk portfolio is a combination of bank deposit and bonds. For most investors, the option of buying bonds with the help of mutual funds is suitable.
If you can control your emotions to some extent and take little risk, then it is worth including 10% of stocks in your portfolio. It is also worth acquiring them with the help of index mutual funds.
Moderate investor
For such investors, I can recommend spreading funds between debt and equity investment instruments in combination, for example, debt / equity - 70/30. This is an example, and if an investor can slightly increase the risk of the portfolio, then it is possible to increase the proportion of shares. If the opposite situation occurs, it is necessary to reduce the share of shares.
Aggressive investor
The advice here is this: an investor should concentrate on equity investments, as they show the highest profitability in the long term. Of course, you can't make your investment portfolio 100% stocks; fixed income instruments should be in it. The share of debt instruments should be from 10 to 20%.
Short term investor
If the investment period is 1-5 years, then best solution there will be debt investments. Reason: The value of equity investment instruments is subject to significant fluctuations in the short term. In general, the option is possible when the investment period falls just on economic crisis and the cost of investment will drop sharply. With regard to the impact of inflation on invested capital, in the short term, its impact is not so significant. In addition, stocks cannot provide stable returns in the short term.
Medium term investor
If the investment period is 5 to 10 years, then the scales begin to move towards equity investments. That is, the best option in the medium term will be the distribution of funds between debt and equity instruments - 50/50. This ratio will make it possible to receive a quite decent current income from the debt component of the portfolio, as well as a moderate capital growth from the equity component. Also, I can explain the increase in the share of stocks in the portfolio as follows. With an increase in the investment period, the ability of equity instruments to protect investments from inflation increases.
Long term investor
Investment term from 10 years. There can be only one advice here, as much as possible of the portfolio should be stocks. After all, in the long run, it is shares that will help protect capital from the harmful effects of inflation, as well as provide a significant increase in capital. I would also like to note that over time, the risk of owning shares decreases (short-term fluctuations smooth out over time), and debt investment instruments, on the contrary, become more risky, since they cannot adequately protect funds from inflation.
Therefore, the proportion of shares in the portfolio should be as large as possible. It all depends on your attitude towards risk. Even if you are a conservative investor, there must be stocks in your portfolio, even if their share is not large, for example, 5-10%. A moderate investor can afford 40-60%, and an aggressive 80%.
Passive investor
Active investor
The reasons why I will not give you any specific recommendations have already been voiced in the lesson: investment strategies.
Regarding financial literacy, I can give a universal recommendation: always try to improve it, because the higher the level of financial literacy, the more effective you will be as an investor. This applies to both active and passive investment. In both cases, there are opportunities to increase the return on investment. True, the amount of knowledge that an active investor will need is an order of magnitude greater than the amount of knowledge required by a passive investor. And don't forget that the best investment is an investment in self-education.
Well, this lesson turned out to be quite capacious, despite the fact that my goal was to compactly present the material. In this lesson, you could look, both from a practical and theoretical point of view, at the characteristics of an investor, at the factors influencing his behavior, and also get some recommendations for various types of investors. I think that everyone who has learned this lesson will be able to apply the knowledge gained in practice and improve the results of investment activities.
Let's move on to the next lesson:
Thus, having an idea and free capital, you invest (invest) it in the implementation of the idea and thereby get out of poverty and hopeless hard work. This opportunity is provided by free capital (savings), which can be turned into investments for organizing more productive work. With the help of economic investments (investments in business), a reserve of time is created, which allows, through the introduction of new ideas, to increase labor productivity, and therefore put a person on a new level of quality of life, wealth. Making a profit from the sale of goods and services produced, a person can use it for personal consumption (purchasing the necessary things, food, organizing his rest, treatment, etc.) and investing in less risky areas of investment.
Objects of investment activity. The objects of investment activity in Russia can be newly created and modernized production facilities (fixed assets) and working capital in all industries National economy, securities, targeted cash deposits, scientific and technical products, other objects of property, as well as property rights and intellectual property rights.
Often the term "investment" is identified with the term " capital investments". Investments in this case are considered as an investment in the reproduction of fixed assets (buildings, equipment, Vehicle etc.). However, investments can also be made in current assets, and in various financial instruments(shares, bonds, etc.), and certain types of intangible assets (acquisition of patents, licenses, know-how, etc.). Thus, investments are a broader concept than capital investments.
In the Law of the Russian Federation "On investment activity in Russian Federation in the form of capital investments” the concept of “capital investments” is interpreted as follows: “... capital investments are investments in fixed assets (fixed assets), including the costs of new construction, expansion, reconstruction and technical re-equipment of existing enterprises, the acquisition machines, equipment, tools, inventory, design and survey work and other costs.
· the process of simple and extended reproduction of fixed assets, both in the production and non-production sphere;
the process of providing and replenishing working capital;
· overflow of capital from one sphere to other, more attractive ones, on the basis of real and portfolio investments;
· redistribution of capital between owners by acquiring shares and investing in the assets of other enterprises.
There are gross and net investments. Gross investment are made up of net investment and depreciation.
Net investment is gross investment minus depreciation charges. If gross investment is equal to depreciation, then this means that only simple reproduction takes place. If gross investments exceed the value of depreciation charges, then this indicates the presence of both simple and expanded reproduction of fixed assets.
The essence of investments as an economic category predetermines their role and significance at the macro and micro levels.
At the macro level, investments, and especially capital investments, are the basis for development national economy and increasing the efficiency of social production through:
· systematic renewal of fixed production assets of enterprises and non-productive sphere;
· accelerating scientific and technological progress, improving the quality and ensuring the competitiveness of domestic products;
· balanced development of all sectors of the national economy;
· Creation of the necessary raw material base;
· building up the economic potential of the country and ensuring the defense capability of the state;
Reduction of production and distribution costs;
· increase and improve the structure of exports;
solving social problems, including the problem of unemployment;
· Ensuring positive structural shifts in the economy;
redistribution of property between business entities, etc.
Thus, investments ultimately determine the growth of the economy. Directing capital investments to increase the real capital of society (acquisition of machinery, equipment, modernization and construction of buildings, engineering structures), we thereby increase the national wealth and production potential of the country.
The state of the country's economy depends on the efficiency of the functioning of all business entities, i.e. commercial organizations.
Investments and, first of all, capital investments are the basis for ensuring this efficiency in the enterprise.
Investments at the micro level are needed to achieve the following goals:
increase and expansion of the scope of activities;
Prevention of excessive moral and physical depreciation of fixed production assets;
Reducing the cost of production and sales of products;
· raising the technical level of production through the introduction of new equipment and technologies;
Improving the quality and ensuring the competitiveness of products;
· improvement of safety precautions and implementation of environmental protection measures;
Ensuring the competitiveness of the enterprise;
· Acquisition of securities and investments in assets of other enterprises;
Acquisition of a controlling stake, etc.
Ultimately, they are necessary to ensure the normal functioning of enterprises in the future, stable financial condition and maximizing profits. All this determines the role and importance of investment at the micro level.
Therefore, investment is the most important economic category, and they play an extremely important role, both at the macro and micro levels, and primarily for simple and expanded reproduction, structural transformations, maximizing profits and, on this basis, solving many social problems.
In many definitions of investment, it is noted that they are an investment of money. While the investment of capital can be carried out not only in cash, but also in other forms of movable and real estate, various financial instruments (primarily securities), intangible assets, etc. In general, investments are considered to be long-term investments. Of course, many investments (primarily capital investments) are long-term, but investments can also be short-term (for example, short-term financial investments into stocks, savings certificates, etc.).
What is being invested?
Units, shares and other securities
Target bank deposits
Technology
Machinery, equipment
Licenses, including trademarks
Credits
intellectual values
intellectual values
Figure 2.1 - Forms investment deposit
Forms of investment contribution. Figure 2.1 shows the forms of investment contribution provided for by Russian legislation.
Classification of investments. By type of property for the creation of which are used financial resources, distinguish between: material, financial and intangible investments (Figure 2.2).
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Figure 2.2 - Classification of investments by areas of investment
Investments in objects entrepreneurial activity classified in the literature according to the following signs:
1. By investment objects allocate economic, financial and consumer investments.
Under economic investments understand the investment of funds in real production assets, in the creation production capacity both tangible and intangible. Investing in intangible assets associated with scientific and technological progress are characterized as innovative investments).
Under financial investments understand investments in various financial instruments (assets), among which the most significant share is occupied by investments in securities.
Investing in durable goods and real estate is called consumer investments.
Consumer and financial investments, in our opinion, play an auxiliary role in the economy in the sense that their effective development with the benefit of the majority of the population is possible only with the intensification of business activity in economic sphere, that is, in the production of goods and services to meet the ever-increasing needs of people. For example, during a downturn in business activity, the price on the securities market falls, the bulk of the population does not see them as a serious source of income and protection of their capital, which means that they not only do not buy securities, but, on the contrary, look for ways to get rid of them. The bulk of the population, reacting in this way, does not contribute to the business economic recovery, but only tries to protect their savings on money market national and foreign exchange. Under these conditions, business in the securities markets turns into speculative games of a handful of people who enrich themselves through the massive dumping of securities. The bulk of the population has no income, and hence no interests in the financial investment market, and has no funds for consumer investment.
Most often in the literature by investment objects investments are divided into: real and portfolio (financial).
Portfolio (financial) investments- investments in shares, bonds, other securities, assets of other enterprises. When making portfolio investments, the investor increases his financial capital, receiving dividends - income on securities.
Real investment– investments in the creation of new, reconstruction and technical re-equipment of existing enterprises. In this case, the investor enterprise, investing funds, increases its production capital - the main production assets and the working capital necessary for their operation.
2. By the nature of participation in investment allocate direct and indirect investments.
Under direct Investment refers to the direct participation of the investor in the selection of investment objects and investment. Direct investment is carried out mainly by trained investors who have fairly accurate information about the investment object and are well acquainted with the investment mechanism.
Under indirect(they are also called portfolio) investments are understood as investments mediated by other persons (investment or other financial intermediaries). Not all investors are qualified to effectively select and manage investment objects. In this case, they purchase securities issued by investment or other financial intermediaries (for example, investment certificates of investment funds and investment companies), and the latter, collected in this way investment funds, place at their own discretion - they choose the most effective investment objects, participate in their management, and then distribute the income received among their clients.
3. By investment period distinguish between short-term and long-term investments.
Under short-term investments are usually understood as capital investments for a period not exceeding one year (for example, short-term deposits, buying short-term savings certificates, state credit obligations, etc.).
Under long-term investments are capital investments for a period of more than one year. In the practice of large investment companies, long-term investments are detailed as follows: a) up to 2 years; b) from 2 to 3 years; c) from 3 to 5 years; d) over 5 years.
4. By form of ownership of investors allocate private, state, foreign and joint investments.
Under private investments are understood as investments made by citizens, as well as enterprises of non-state forms of ownership, primarily collective.
Under state investments are understood as investments made by central and local authorities and management at the expense of budgets, off-budget funds and borrowed funds, as well as state-owned enterprises and institutions at the expense of their own and borrowed funds.
Under foreign investments are investments made foreign citizens, legal entities and states.
Under joint investments are understood as investments made by the subjects of a given country and foreign states.
5. By region allocate investments at home and abroad.
Under investment inside the country(domestic investment) means investing in investment objects located within the territorial boundaries of a given country.
Under investment abroad(foreign investments) understand investments in investment objects located outside the territorial boundaries of a given country (these investments also include the acquisition of various financial instruments of other countries - shares of foreign companies, bonds of other states, etc.).
In the literature, often on a regional basis, investments are divided into national and foreign investments.
National characterize capital investments by residents (legal entities and individuals) of a given country in objects (instruments) of investment in its territory.
Foreign investment characterize the investment of capital by non-residents (legal entities and individuals of another country) in the objects (instruments) of investment in this country.
6. By the nature of participation in the investment process distinguish indirect(investment of the investor's capital mediated by other persons (financial intermediaries)) and direct investments(it implies the direct participation of the investor in the choice of objects of investment and capital investment). Usually, direct investments are made by direct capital investment in the authorized capital of the enterprise. Direct investment is carried out mainly by trained investors who have fairly accurate information about the investment object and are well acquainted with the investment mechanism.
7. By level investment risk distinguish the following types of investments:
· risk-free investment- investments in such investment objects for which there is no real risk of loss of capital or expected income and the receipt of the estimated real amount is practically guaranteed investment income;
· low risk investments- capital investments in investment objects, the risk for which is significantly lower than the average market;
· medium risk investments- the level of risk for investment objects of this group approximately corresponds to the average market;
· high-risk investments– the risk level for investment objects of this group exceeds the market average;
· speculative investment- investing in the most risky investment projects or investment instruments for which the highest level of investment return is expected.
Aggressive investments characterized by a high degree of risk, high profitability and low liquidity.
Moderate investment are distinguished by an average (moderate) degree of risk with sufficient profitability and liquidity of investments.
are low-risk investments characterized by reliability and liquidity.
Of course, along with speculators and investment in its purest form, a considerable part of depositors is engaged in both. INVESTOR AGGRESSIVE
An aggressive investor is an investor who is willing to take risks in order to receive high dividends.
An aggressive investor is a recipient of securities, ready to take risks for the sake of high dividends.
INVESTOR AGGRESSIVE - see. AGGRESSIVE INVESTOR
Depending on the attitude to the expected return and risk, investors are divided into three groups: conservative investor, moderately aggressive and aggressive. For each of the groups, the most significant indicators are identified that have the greatest influence on the choice of investment object.
Note that the combination "high yield - high risk" is a classic in its essence. An aggressive investor, gravitating toward the specified combination of return and risk factors, nevertheless, seeks to reduce risk through insurance. In Russia, there is practically no investment risk insurance system, just like
A medium growth portfolio is a combination of the investment properties of aggressive and conservative growth portfolios. Along with reliable securities, this includes risky stock instruments. At the same time, an average capital gain and a moderate degree of investment risk are guaranteed. The most popular portfolio among investors who are not prone to high risk.
These goals may be alternative and correspond to different types of securities portfolios. For example, if the main goal is to earn interest, then preference may be given to an aggressive portfolio, consisting of low-liquid and high-risk securities of young companies, which, however, can, if things go well, bring high interest. Conversely, if the most important thing for an investor is to ensure the safety and growth of capital, then the portfolio will include securities that have
Suppose an investor owns shares of company A and company B, i.e. The investor's portfolio includes shares of two companies. Company B, however, has been around for decades, is in a mature growth stage, generates significant cash flows, and is known for high dividend stability. Company A is a newly formed venture capital company characterized by aggressiveness, fast growth and extreme volatility in profits and losses and, consequently, in the amount of dividends paid. On the basis of statistical observations carried out over a number of years, the probabilities of obtaining one or another amount of profitability on the shares of these companies are known. The characteristics of possible rates of return and the probability of their achievement are given below.
As a rule, the investor constantly changes the type of portfolio, based on the stock market conditions and strategic goals. Specific portfolio strategies (aggressive, moderate and conservative) are determined by the following circumstances
Aggressive investor looking to get maximum income from its investments, acquires shares of industrial joint-stock companies (corporations). The conservative investor buys mainly bonds and short-term securities. Having a low degree of risk (Table 8.1).
Situation 2. The company has in its securities portfolio shares of enterprises involved in the extraction, transportation and sale of petroleum products, shares of enterprises producing chemical products based on petroleum products. This portfolio of financial investments can be recognized as aggressive and risky. All issuers are links in a single technological chain for the production, transportation, processing and sale of oil and oil products. The bankruptcy of one of the enterprises will inevitably lead to the collapse of the rest, which means for the investor the loss of financial investments.
In world practice, a more detailed differentiation of the types of potential investors is provided: 1) conservative 2) moderately aggressive 3) aggressive 4) experienced 5) sophisticated. The main types of investors are shown in Table. 16.1.
The goal of conservative investors is the safety of investments. Moderately aggressive investors seek not only to keep the invested capital, but to get a return on it, albeit a small one. Aggressive investors are not satisfied with the percentage of invested funds, but are trying to achieve an increase in capital. Experienced investors will try to provide both profit, capital increase, and securities liquidity, i.e. their rapid implementation on the market, if necessary. The goal of sophisticated investors is to maximize returns.
Aggressive investor. This term characterizes a business entity that selects investment objects (instruments) according to the criterion of maximizing the current investment income, despite the high level of risk associated with them.
The objective reason for the increased concentration of capital lies in the actions of aggressive investors and speculators to take over corporations. To counteract corporations are developing appropriate measures, called shark repellents. To make the takeover unprofitable, the contract with the top executive of the corporation includes terms according to which the acquiring investor must pay high bonuses to the dismissed management personnel. These are the so-called golden parachutes.
It is generally believed that a widow is a more conservative investor, while a student is more aggressive. In other words, we should expect the widow to be primarily interested in the security of the return on her investment from the student, we can expect him to be willing to take risks, counting on a higher return.
Buying bonds is the best choice for an investor whose main goal is a stable current income and high reliability investments (bonds are financial instruments with fixed income). For example, conservative investors buy bonds with the intention of earning a steady income up to the maturity date and then repaying the principal. However, they are not immune from inflationary risk and impairment of the fixed amount of interest income. More aggressive investors use bonds to trade, with the goal of making the highest possible return by selling bonds at a price higher than their purchase price. The value of a bond issued when market rates were high increases during a period of decline interest rates, as the number of investors wishing to purchase a financial instrument, the yield of which is higher than the current rate, is growing. Therefore, in such a situation, selling the bond at an increased price (with a premium) will bring its holder a greater profit than if he decided to wait for its maturity. The converse is also true if market rates rise, selling bonds at a reduced price (at a discount) will mean a loss for their holder.
Another, more complex method is to analyze each trade (tick) and constantly recalculate the index, multiplying the price change by the number of shares (contracts). Some analysts prefer to analyze only large trades (more than 10,000 shares), believing that they are made by well-informed, experienced investors whose aggressiveness is determined by the price concessions they are willing to make. Another group of analysts also takes into account price changes and volume, but calculates the index based on the results of the entire trading day. In this case, the daily price change is multiplied by the day's trading volume (see Figure 5.2).
The priority of certain goals determines the type of portfolio. For example, if the main goal of an investor is to ensure the safety of investments, then. in his conservative portfolio, he will include securities issued by well-known and reliable issuers, with low risks and stable average or low returns, as well as high liquidity. On the contrary, if the most important thing for an investor is capital growth, then preference will be given to an aggressive portfolio consisting of high-risk securities of young companies. Conservative investors include many middle-aged and elderly people, as well as most institutional investors, investment funds, pension funds, Insurance companies and etc.
He applied his theory to the merger boom of the late 60s, and made money, by his own admission, in all weathers. At first, he watched the merger bacchanalia that inflated corporate earnings and impressed large institutional investors. Soros believed that the addiction of overly aggressive managers would drive up the stock prices of the merged firms. He actively bought these shares. And then he sold them and made good money on the decline that soon followed.
Finally, the price reaches the levels calculated by seasoned investors. They start to get rid of assets. Everything is as accurate as it was when you bought it. At the same time, the asset is still a "hot pie" and investors do not experience problems with liquidity. Newspapers and television are screaming with might and main about the finest hour of the underlying asset and the fall of the quoted currency, predicting its imminent death and describing the options and advantages of alternative investments. By this time seasoned investors have almost sold their volumes. The majority of players perceive a small price reduction as another correction and are in a hurry to buy more. Having suspected that something was wrong, the rest of the competent investors and speculators decide to take profits when the price approaches its maximum values. It is not surprising that the price rises towards the reached peak again, perhaps almost reaches it or even slightly exceeds it, but then begins to fall sharply. At this stage, the game has already been played for most experienced investors, and many of them are looking for other assets (read - "leave"), and the most aggressive ones generally sell. As a result, supply increases, demand falls, and sometimes disappears altogether, because everyone who wanted to buy has already bought. Figure 9.1. the moment of peak formation is shown.
The only critical trend change occurs at the V 09 trough. By not applying the entry rules, the most aggressive investors will receive a direct buy signal. When the market drops quickly from the W09 low, we understand how important it is to work with a stop loss rule, no matter how promising a trend reversal signal may look. On the other hand, a trend reversal in the W10 trough shows how far from the stop loss levels an entry point can be placed if, after the time Fibonacci target is reached, a conservative entry rule is applied.
This approach is conservative because it has the disadvantage that a trend change can be completely missed if a strong trend reversal occurs instead of an a-b-c correction. More aggressive, willing investors might do better by submitting an order before reaching a point where the close is above the high of the day since lowest level(and vice versa for a sell signal), as shown in Fig. 3-13.
As already noted, an important type of investment in Russia free funds are investments in securities, that is, securities portfolio management, which includes planning, analysis and regulation of the composition of the portfolio, work on its formation and maintenance in order to achieve its goals while maintaining the required level of its liquidity and minimizing the costs associated with the portfolio. Let's dwell on this in more detail. The goals of investing in securities are to receive interest, preserve capital, and ensure capital gains based on the growth in the market value of securities. They can be alternative and correspond to different types of securities portfolios. For example, if interest is a priority, then preference is given to aggressive portfolios, consisting of low-liquid and high-risk securities of companies that, however, can, if things go well, bring very high interest. If the most important thing for the company is to ensure the safety and growth of capital, then the portfolio includes securities with high liquidity issued by well-known investors with low risks and pre-expected average interest payments.
The aggressive rational investor fits the isoline with smaller
AGGRESSIVE INVESTOR - A buyer of securities who is willing to take risks in order to receive high dividends. Usually buys shares.
The difference between the objects in the composition of the investment portfolio, the purpose of investment, the attitude to risk and other conditions determines the variety of types of investment portfolios. At the same time, the main classification features are the object of HHBI staging, the nature of the formation of investment income, the attitude to risks, the degree of liquidity of the portfolio, the conditions for taxing investment income, etc. The type of investment portfolio reflects the type of the investor himself (aggressive, moderate, conservative).
Certain differences are also formed in the formation of the rate of return on invested capital. If for real investments this indicator is mediated by the level of upcoming operating profit, which is formed under the conditions of objectively existing industry restrictions, then for financial investments, the investor himself chooses the expected rate of return, taking into account the level of risk of investments in various financial instruments. A cautious (or conservative) investor will choose
