Investment Process

The following is investment process which is followed when an investment decision is to be taken.

  1. Meeting the prerequisite of investment
  2. Setting investment policy/goals
  3. Security evaluation or analysis
  4. Portfolio construction
  5. Managing the portfolio & its performance

Prerequisite of Investment:

For Individuals

– Fulfillment of basic needs
– Keep cash to bear sudden (emergency) requirements
– In case of loss, you must have enough strength to meet it.

For Companies

– Ensure the uninterrupted operations
– fulfill their short term financial needs
– fulfill their raw material and employees needs

Setting Investment Policy or Goals:

Timing of Investment:
If company wishes to invest for short term or long term investment.
Form of Investment:
If company wishes to investment is in real or financial assets.
If company wishes to invest in high risk or low risk investments.
Return Expectations:
If company has high return or nominal return expectations.

Security Evaluation and Analysis:

Technical Analysis:
It is a security analysis for forecasting the  future direction of prices through the study of past relevant data like price and return behaviors.

Fundamental Analysis:
It is the study of the fundamentals of a company to determine if the business has potential for investment by considering the Risk , required rate of return and companies cash flows , profits and other data by analyzing their financial statements.

Portfolio Construction:

The investments are diversified into various sectors to minimize the risk. That means we do not invest our whole amount in a single opportunity or investment. When we gather different investments we have a portfolio of investments. We can use different techniques to evaluate how can we increase our returns or reduce our risk on certain investments. Portfolio is the best method to increase your returns and reduce your risks because if somehow your decision about an investment goes wrong and you suffer losses, you have other investments which will compensate.

Managing the Portfolio & its Performance:

In this step, we observe our portfolio and look for the returns. If any of the investment is not up to to the expectations we might swap that investment with any other one.

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