What Is Investing?
The act of committing money or capital to an endeavour with the expectation of obtaining an additional income or profit
There are many different ways you can go about making an investment. This includes putting money into stocks,derivatives,commodities, bonds, mutual funds, real estate, or starting your own business.
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Investment Objectives
Investment Objectives
Primary objectives:
Safety of capital
Current income
Capital appreciation.
TYPES OF INVESTMENT RISK
In the analysis of investment risk, we would note two distinct types of risk:
•Market Risk
"Market Risk" derives from market-wide factors - factors which, thus, affect all businesses or, indeed, the economy as a whole.
•Specific Risk
"Specific Risk" derives from factors which are specific to:
an individual company
companies within a particular industrial sector
companies in a particular country or geographicl region
"Specific Risk" is, therefore, ADDITIONAL to "Market Risk".
–Calculating the RATE OF RETURN :
R = (p1 - p0)/ p0
where
R = the rate of return
P0 = the beginning price
P1 = the ending price
lRisk, return, and diversification.
–The fundamental principle.
lCombining securities in a portfolio.
lResults in a lower level of risk.
lThan a simple average of the risks of each.
The Investment Process
lFive steps:
–Set investment policy
–Perform security analysis
–Construct a portfolio
–Revise the portfolio
–Evaluate performance
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