Investment Decision Making Strategies
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Investment with the motive of gaining prospective returns requires sound knowledge of the current market economy and adept decision making. Whether you want to make investment as an individual or a company, there are myriad strategies that alert investors need to keep in mind in order to reap the greatest profits possible. In general, there are four strategies to clever investment decision making namely the Fundamental Approach, the Psychological Approach, the Academic and Eclectic Strategies. |
The Fundamental Approach to investment decision making is based on the intrinsic or elemental value of the particular security that you seek to invest in. A rigorous analysis of the underlying factors influencing the value of the security in the market such as the current economic status of the country or industry is imperative. An intelligent investment decision making would be to purchase undervalued securities and sell them at a time when the values reach quite a high price. The Psychological Approach is essentially based on assumption and emotions of the investor who may vacillate between feelings of greed and fear, thus making his investment decision accordingly. In this case it is important for the investor to apply some technical strategies in order to gauge the internal market oscillations. The Academic approach embraces the idea of the existence of a positive relationship between the risk and returns of the securities and thus concludes that the current market price of a security at any point of time is equivalent to its intrinsic value. Lastly, the Eclectic approach takes into account all the above mentioned investment decision making strategies. For instance, the Fundamental Strategy would be required for understanding market standards, the Psychological Approach for assessing the mood swings of the investors, and the Academic Strategies for establishing a correlation between risk and return for most securities. In recent times, the hospitality sector and hotel industry have come up with new investment decision making strategies such as the Weighted Average Cost of Capital where investors determine the total cost of capital comprising the expenses incurred in borrowing and cost of equity. Once this is calculated, they have to look into certain factors such as whether investment embraces a positive net present value, the overall debt-to-equity ratio, and the assumed profitable returns of the proposed project.
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