Chapter 1
Chapter 1
Chapter 1
INTRODUCTION
There are many ways for individual investors to buy stocks, each with advantages and
disadvantages. If you want low fees, you might have to put more time managing your
investments. If you wish to outperform the market, you may pay higher fees. If you want a lot
of advice, you'll probably have to pay more as well. If you don't have much time or interest,
you might have to settle for lower results.
Perhaps the most risk is from the emotional aspect of investing. Most stock buyers get
greedy when the market is doing well. Unfortunately, this makes them buy stocks when they
are the most expensive. A poorly performing market triggers fear. That makes most investors
sell when the prices are low.
Selecting which way to invest is a personal decision. It mostly depends on your comfort
with risk It also depends on your ability (and willingness) to spend time learning about the
stock market.
MEANING
An investor is any person who commits capital with the expectation of financial returns.
Investors utilize investments in order to grow their money and/or provide an income during
retirement, such as with an annuity. A wide variety of investment vehicles exist including (but
not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds (ETFs),
options, futures, foreign exchange, gold, silver, retirement plans and real estate. Investors
typically perform technical and/or fundamental analysis to determine favorable investment
opportunities, and generally prefer to minimize risk while maximizing returns.
Definition:
An investor is an entity that commits money to a venture with an expectation of
generating a return. The type of commitment made can be in many forms, such as a guarantee
to pay creditors, a loan, an equity investment, tangible assets, or even the contribution of
labor. An investor typically makes a commitment in exchange for either a fixed return (such
as dividends or interest) or the prospect of being able to sell its investment to a third party at a
later date for a higher price than the amount of the original investment.
An investor can be an individual or a corporate entity. For example, a corporation could
contribute funds to a joint venture, in which case the corporation is an investor in the joint
venture.
Meaning of Investment
The word investment can be defined in many ways according to different theories and
principles. It is a term that can be used in a number of contexts. However, the different
meanings of investment are more alike than dissimilar.
Generally, investment is the application of money for earning more money.
Investment also means savings or savings made through delayed consumption. According to
economics, investment is the utilization of resources in order to increase income or
production output in the future. An amount deposited into a bank or machinery that is
purchased in anticipation of earning income in the long run is both examples of investments.
Although there is a general broad definition to the term investment, it carries slightly
different meanings to different industrial sectors.
Investment Definition
According to economists, investment refers to any physical or tangible asset, for
example, a building or machinery and equipment.
On the other hand, finance professionals define an investment as money utilized for
buying financial assets, for example stocks, bonds, bullion, real properties, and precious
items.
Investment definition according to finance, the practice of investment refers to the
buying of a financial product or any valued item with anticipation that positive returns will be
received in the future.
The most important feature of financial investments is that they carry high market
liquidity. The method used for evaluating the value of a financial investment is known
as valuation.
Definition of investment according to business theories, investment is that activity in
which a manufacturer buys a physical asset, for example, stock or production equipment, in
expectation that this will help the business to prosper in the long run.
The Two Types of Investments You Can Make In a Small Business
Investing in a small business is one of the most popular ways families begin the journey
to financial freedom. It isn't uncommon, at least in nations with an entrepreneurial history
such as the United States, for someone to have never owned a publicly traded share
of stock or a mutual fund, but have their own restaurant, dry cleaning business, or sporting
goods store. Frequently, this grows to represent the most important financial resource the
family owns, other than their primary residence.
In today's economy, these types of small business investments are often structured as
either a limited liability company or a limited partnership, with the former being the most
popular. In years past, sole proprietorships or general partnerships were more popular, which
provide no protection for the owners' personal assets outside of the company.
Whether you are considering investing in a small business by founding one from scratch
or buying into an existing company, there are typically only two types of positions you can
take:
1.) Equity
2.) Debt.
Equity Investments in Small Businesses
When you make an equity investment in a small business, you are buying an ownership
stake. Equity investors provide capital, almost always in the form of cash, in exchange for a
percentage of the profits and losses. The business can use this cash for a variety of things,
including funding capital expenditures to expand, reducing debt, buying out other owners,
building liquidity, or hiring new employees.
In some cases, the percentage of the business the investor receives is proportional to the
total capital he or she provides. An equity investment in a small business can result in the
biggest gains, as well as the most risk. If expenses run higher than sales, the losses get
assigned to you. A bad quarter, or year, and you might see the company fail or even go
bankrupt. However, if things go well, your returns can be enormous. Virtually all of the
research on millionaires in the United States shows that the single biggest classifications of
the millionaires are self-made business owners. If you want to rank among the top 1% of
wealth, owning a profitable business in a niche market that churns out dividends each year is
your best chance, statistically.
Debt Investments in Small Businesses
When you make a debt investment in a small business, you loan it money in exchange
for the promise of interest income and eventual repayment of the principal. Debt capital is
most often provided either in the form of direct loans with regular amortization or the
purchase of bonds issued by the business, which provide semi-annual interest payments
mailed to the bondholder.
The biggest advantage of debt is that it has a privileged place in the capitalization
structure. That means if the company goes bust, the debt has priority over the stockholders
(the equity investors). Generally speaking, the highest level of debt is a first mortgage
secured bond that has a lien on a specific piece of valuable property or an asset, such as a
brand name. For example, if you loan money to an ice cream shop and are given a lien on the
real estate and building, you can foreclose upon it in the event the company implodes. It may
take time, effort, and money, but you should be able to recover whatever net proceeds you
can get from the sale of the underlying property that you confiscate. The lowest level of debt
is known as a debenture, which is a debt not secured by any specific asset but, rather, but the
company's good name and credit.
INVESTMENT TYPES
A particular investor normally determines the investment types after having formulated
the investment decision, which is termed as capital budgeting in financial lexicon. With the
proliferation
of financial
markets there
are
more
options
for
investment
types.
It is common practice for the particular intermediaries to have separate legal procedures
of their own.
Types of Investment:
Capital Investment
Equity Investment
Land As Investment
Stock Investment
Retirement Investment Planning
Financial Market Investment
investments are also made in several other firms. These investments are made for short
periods of time.
In the recent years, the stock market boom has fueled the individual private investments
also. At present, the individual private investors are investing in huge amounts in the home
based businesses with huge growth potentials. In this way, the angel investors are promoting
the home based businesses and speeding up their development. At the same time, a number of
big and established companies are also getting these investments.There are a number of home
based businessmen who wants to develop quickly and also to expand their business as much
as possible. For the purpose, any size of home based businesses can try and attract the angel
investors.
Normally these investors can invest $50,000 or even more in the businesses. At the same
time, there are a number of investors who are interested in investing their money in the
growing industries only. The individual private investors are very helpful for the businesses.
Apart from investing money, the individual investors are also a rich source of new business
connections and clients. At the same time, some of the individual investors also take part in
the business activities and play a decisive role in the businesses. The investments done by the
individual private investors are mostly made in the businesses where the products are secured
by patents. These investments are taken out from the businesses in a short span of nearly five
years. There are different types of individual private investors.
Some of these are the following:
Value Added Investors
Unaccredited Private Investor
Barter Investors
Partner Investor
Deep Pocket Investor
Manager Investor