In general, to invest is to allocate money (or sometimes other resources, such as time) in the hope of some future benefits - for example, investments in durable goods, in real estate by the service industry, in factories for manufacturing, in product development, and in research and development. However, this article focuses specifically on investing in financial assets.
In finance, the return on investment is called return. Returns may consist of capital gains or investment income, including dividends, interest, rental income etc, or a combination of both. The projected economic return is a properly discounted value of future earnings. Historical returns consist of actual capital acquisition (or loss) or income (or both) during a specified period of time.
Investors generally expect higher returns from risky investments. Financial assets range from low-risk investments, low-income investments, such as high-class government bonds, to those at higher risk and expected higher returns, such as emerging market share investments.
Investors, especially beginners, are often advised to adopt specific investment strategies and diversify their portfolios. Diversification has a statistical effect reducing overall risk.
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Investment differs from arbitration, in which profits are generated without capital investment or risk.
An investor can bear the risk of losing some or all of their invested capital, whereas in savings (as in bank deposits) the risk of loss in nominal value is usually far away. (Note that if the currency of a savings account differs from the account holder's domestic currency, then there is a risk that the exchange rate between two currencies will move unprofitable, so the value in the currency of the savings account owner account is reduced.)
Speculation involves a greater degree of risk than most investors will generally consider justified by expected returns. Alternative characterization of speculation is short-term opportunistic.
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Famous investors
Famous investors for their success include Warren Buffett. In the March 2013 edition of Forbes magazine Warren Buffett was ranked 2nd in their Forbes 400 list. Buffett has suggested in various articles and interviews that a good investment strategy is long term and choosing the right asset to invest requires a due diligence.
Edward O. Thorp was a very successful hedge fund manager in the 1970s and 1980s who spoke of a similar approach.
The investment principles of both investors have the same points as Kelly's criteria for money management. Many interactive calculators that use Kelly's criteria can be found online.
Intermediaries and collective investments
Investments are often made indirectly through intermediary financial institutions. These intermediaries include pension funds, banks, and insurance companies. They can collect the money received from a number of individual individual investors into funds such as investment trust, unit trust, SICAV, etc. To make large-scale investments. Each individual investor holds an indirect or direct claim to the purchased asset, subject to fees levied by intermediaries, which may be large and diverse.
Approaches to investments are sometimes referred to in the marketing of collective investments including the average dollar cost and market time.
History
The Code of Hammurabi (around 1700 BC) provides a legal framework for investments, establishes the means for collateral security by codifying the rights of the debtor and creditor in respect of the guaranteed land. Penalties for violating financial obligations are not as severe as those involving crimes involving injury or death.
In the early 1900s stock buyers, bonds, and other securities were described in the media, academia, and trade as speculators. By the 1950s, the term investment had come to show the more conservative edge of the spectrum of securities, while speculation was applied by financial brokers and their advertising agencies to higher risk securities at the time. Since the last half of the twentieth century, the terms speculation and speculators specifically refer to higher risk ventures.
Investment value
A value investor buys an asset that they believe is undervalued (and sells that are overvalued). To identify less valued securities, value investors use financial statement analysis from publishers to evaluate security. Value investors use accounting ratios, such as earnings per share and sales growth, to identify securities trading at a price below the value.
Warren Buffett and Benjamin Graham are important examples of value investors. Graham and Dodd's seminal work, Security Analysis, was written after The Wall Street Crash of 1929.
The price-to-income (P/E) ratio, or some earnings, is a very significant and admissible fundamental ratios, with the function of dividing the stock's share price, with earnings per share. This will provide a value that represents the number of investors who are ready to spend for each dollar of corporate earnings. This ratio is an important aspect, because of its capacity as a measure for comparison of valuations of various companies. A stock with a lower P/E ratio will cost less per share than the higher P/E, taking into account the same level of financial performance; therefore, basically means low P/E is the preferred choice.
An example of where the price-to-revenue ratio has a lower significance is when firms in different industries are compared. For example, although it makes sense for a telecom stock to show P/E in low teens, in terms of hi-tech stocks, P/E in the 40's range is unusual. When making comparisons, the P/E ratio can give you a better view of a particular stock valuation.
For investors who pay every dollar of corporate earnings, the P/E ratio is a significant indicator, but the book price (P/B) ratio is also a reliable indication of how many investors are willing to spend on each dollar. company assets. In the P/B ratio process, the share price of a share is divided by its net assets; every intangible, like goodwill, is not taken into account. This is an important factor of the price-to-book ratio, since it shows actual payments for tangible assets and not a more difficult assessment of tangible. Thus, P/B can be considered a relatively conservative metric.
Free cash flow and capital structure
Free cash flow measures the cash generated by the firm available to debt and equity investors, after allowing reinvestment in working capital and capital expenditures. Therefore, high free cash flow and increased tend to make the company more attractive to investors.
Debt to equity ratio is an indicator of capital structure. High debt proportions, reflected in high debt-to-equity ratios, tend to generate corporate earnings, free cash flow, and ultimately returns to investors, more risky or volatile. Investors compare debt-to-equity ratios with other firms in the same industry, and examine trends in debt-to-equity ratio and free cash flow.
EBITDA
Popular assessment metrics are Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), with applications for example to assess unlisted companies and mergers and acquisitions.
For an attractive investment, for example a company competing in a high growth industry, an investor might expect a significant premium over the current book value or market value, which rates the company on several recent EBITDAs. Private equity funds for example can buy target companies for multiples of historical or estimated EBITDA, perhaps as much as 6 or 8 times.
In certain cases, EBITDA can be sacrificed by the company, to pursue future growth; strategies often used by giant corporations, such as, Amazon, Google and Microsoft, among others. This is a business decision that can negatively impact a buying offer, which is based on EBITDA and can be the cause of many negotiations, failing. This can be acknowledged as an appraisal violation, with many investors maintaining that sellers are too demanding, while buyers are perceived to fail to realize long-term potential, expenditure or acquisitions.
Type of financial investment
Types of financial investments include:
- Alternative investment
- Traditional investment
- (Investment interested)
See also
References
External links
- Invest in Curlie (based on DMOZ)
Source of the article : Wikipedia
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