BPB23403 12/09/2012

The Definition & Concepts of Investment

BPB23403 2

Introduction to Investment
 Invest=use (money) to buy shares,
1
properties, etc, in order to earn
• T H E D E F I N I T I O N & CO N C E P T S O F I N V E ST M E N T interest or bring profit
• T H E O B J EC T I V E S O F I N V E ST M E N T
• I N D I V I D UA L VS CO R P O R AT E I N V E ST M E N T  Investment=Investing of money
• T H E I N V E S M E N T P RO C E S S
 Investor=person who invests money

BPB23403 BPB23403

The Definition & Concepts of Investment The Objectives of Investment

3 4

 Basic objective of investment consists of the

“Financial discipline that following:
 Safety – safe and secure investment
studies securities, security  Income

markets and investor  Growth of capital i.e. capital gain

 Secondary objectives:

behavior”. Tax minimization- favorable tax treatment

Marketability/Liquidity of the securities

BPB23403 BPB23403

Individual Vs Corporate Investment Individual Vs Corporate Investment

5

 Investor may be an individual or an institutional
investor (e.g. manager of pension fund or a mutual fund)
 The investor should first establish an investment policy
 In the case of institutional/corporate investor, it refers
to a written document detailing the objectives (e.g.
target average return, managing the risks etc) and
constraints (liquidity needs, projected time horizons, tax
considerations, legal and regulatory requirement etc) of
the investors.
 Example of typical questions that individual investor
must address before reaching an investment decision:
 Investor’s current financial situation?
 Available investable resources?
 What is the investable income over the foreseeable future?
 What cash flows are needed at different dates in the future?
 How much risk can be tolerated by the investor?
 What type of investment would cause the investor to lose sleep?
 What is the tax status of the investment funds?

BPB23403

1
BPB23403 12/09/2012

The Investment Process The Benefits of Studying Investments

7 8

 Investment and life needs – to understand financial concepts,

1. Investor 2. Investment terms etc.
characteristics Vehicles
 Enhancing a person’s welfare-wise investment decisions and
manage finance prudently.
3. Strategy
Development  Challenges (practical fields) – intellectually challenging yet
important in day-to-day decision making.
5. Strategy
 Rewarding career – as financial markets become increasingly
5. Strategy
Monitoring Monitoring complex, so does job opportunities for professional investors
with specialized skills is also increase.
4. Strategy
Implementation

Source: Haim Levi and Thierry Post (2005) Investments

BPB23403 BPB23403

Rewarding career

Job opportunities in investments

Job title Typical firms Description
Broker, registered representative, Brokerage firms, financial Provide sales and financial
account executive institutions planning services
Analyst Brokerage firms, financial Conduct research and security
institutions analysis
Financial planner Private firms, financial institutions Advise individual investors

Portfolio manager Mutual fund groups, pension Perform asset allocation and
funds, money managers security selection
Asset/liability manager Insurance companies, financial Perform research, actuarial work
institutions and asset allocation
Auditor All firms Monitor and devise internal
controls
Regulator Government agencies, exchanges Oversee and police market activity

surveillance Exchanges Oversee and monitor trading

behaviour