Investment Guidelines for Aggressive Investors - Essay Example

Investment Guidelines for Aggressive and Conservative Investors Institution Affiliated Investment Guidelines for Aggressive and Conservative Investors Evaluating investment options may be a challenging task for any investment plans by investors. Having options however, is a good start as it gives more choices in selecting the best investment approach that one is comfortable with. One main factor that many investors consider is the best alternative that successfully meets their savings targets. In line with choosing the best investment options, it is paramount to understand and consider all the investment styles, and the amount of risk that one is comfortable taking. There are three general investment styles that include the Ten Commandments, conservative, and aggressive investors. In the need to understand these investment plans, this paper is aimed at evaluating the basic guidelines that are relevant for aggressive equity investors and conservative equity investors for the purpose of decision making. To begin with, aggressive equality investors actively play the game of equality in a vigorous way. Most of the time is spent in managing their portfolio than their consecutive counterparts. They are subjected to high risks; the calculations are in albeit manner aimed at earning big return rates (Chandra, 2009). For the aggressive equality investors, the following general guidelines are relevant in their investment plans for appropriate decision making. The first guideline is to focus on investments that one understands to play their own game. According to Prasanna Chandra (2009, p. 670), “an investor should always know about the specific company they are investing in, more than the current market does in order to successfully manage their investments.” Therefore, an investor must clearly make a decision on what to focus on. Therefore, decision making is the main key to successful investments. The choices of making decisions are diverse. They include deciding to concentrate on growth, value, multinational companies, small companies, public sector companies, high grade bonds, or low grade bonds. In choosing any of these strategies an investor should be mindful of the basic rules. These rules include being thorough, tough minded, being flexible in knowing the deal about any company one is buying into, and buying when the company is not understood by the existing market is a fundamental idea to keep in mind (Chandra, 2009). As argued by Candara, one should play the game that one is best in, advocating that an investor should do things as an analyst who is best in doing something. For instance, if an investor can foretell the most important development in the technology, in the economy, or in consumer preferences, and can best gauge its consequences on various equity values, then they should concentrate on doing that. However, one has to prove that they are honest with themselves without a bluffing self examination and testing of their performance. Another best guideline is to scout for special circumstances in the secondary market. It is important to note that, investment opportunities that exist in the secondary market are very profitable. Unfortunately, these markets are not easy to identify. An investor has to be on alert and discerning. They mostly occur in situations such as turnaround situations which occurs when a company has been steeped in a poor performance for years and begins to recover; when an investment analyst says, it takes almost six months for a turnaround to present its high performance to the current market; amalgamations which refers to a combination of many companies forming a single company; and takeovers which involves acquisition of some given block of equality capital of a given company. Paying heed to growth shares is also a relevant guideline to aggressive equality investors. It is believed that, investments will always do well if the investors focus on the growth stocks. This is based on three basic guidelines, including developing sound standards for growth stock selection, investing in the growth stocks without minding about the price, holding growth stocks in as much as they remain that way. In identifying growth stocks, an investor should select products and services which have a significant potentiality to increase the sales; good relationships of labor; effective cost controls and competitive strengths (Chandra, 2009). Another important guideline is to anticipate for the earnings ahead of the markets. This is because expected earning of the future is the most important factor that affects the prices of stocks. If the earnings per share increases, it means that the price for a share will rise; same way if the market is preparing for the falling of earnings per share, the price per share will therefore reduce. Leverage your portfolio when you are bullish is a relevant guideline for aggressive investors. Sometimes an investor may feel bullish about certain shares, but they lack enough funds to acquire them. In that case, an investor may obtain loans or overdrafts using their securities. By doing so, they are leveraging their portfolio. For consecutive equality investor, investors usually seek to minimize the risk of investing as well as reduce the time and effort for managing portfolio. The main aim of consecutive equality investors is to seek some peace of mind and avoid aggressive investments. They are usually satisfied with any reasonable return as they do not struggle for more spectacular gains (Chandra, 2009). The general guidelines for consecutive equality investors include, avoiding certain kinds of shares, applying stiff screening criteria, searching for safer opportunities within the primary market, participating in the schemes of mutual fund, and joining a suitable portfolio management scheme Joining a suitable portfolio management scheme is an important relevant guideline for consecutive equality investors. While mutual funds are highly attracted to smaller investors, management of portfolio schemes that is given by banks and other financial companies may be greatly attracted to larger investors (Chandra, 2009). There are two types of schemes for this guideline, discretionary schemes whereby the client places money with the portfolio manager, the manager invests these funds according to his discretion and takes care of the paper work. The profits and losses are for the investor as the portfolio manager receives a service fee. The other scheme is non-discretionary scheme whereby, the investor places funds with the manager, who then offers counsel to that particular investor. The investor then gives his decision as the portfolio manager implements the decision and takes care of the paper work. The portfolio manager is then paid the service fee (Viceira, 2001). In avoiding certain kinds of shares, it is paramount to understand that, some shares are not suitable for consecutive investors. They include, shares of unlisted companies whereby, there is no organized market for these shares and so the market for assessing them is unreliable; manipulated shares, which are shares manipulated for certain business groups for their companies that boost share prices; and cornered shares which are operated by stock markets (Chandra, 2009) . Another guideline is applying stiff screening criteria. The consecutive investors should always choose shares that satisfy stiff requirements in the secondary markets. The criteria for screening that is recommended includes the size, that is, making sure the company is not small; competitive position whereby, the company should have a strong position in competition; industrial prospects, whereby the company’s prospects must be above average; price-earnings ratio, meaning the company’s price earnings must be very high and reputation of management, where an investor ascertains that, the management of the company must have a competitive reputation, commitment and integrity (Viceira, 2001). Searching for safer opportunities within the primary market is yet another guideline for consecutive investors. This means that, consecutive investors should be reluctant in buying shares that are in the secondary market. This is because they are bothered by the volatility and consumption of time in locating good bargains. Therefore, they turn their attention mainly to the primary markets (Chandra, 2009). From all the discussed guidelines, it is clear that, aggressive investors actively play the game of equity vigorously. Besides the general investment guidelines, aggressive equality investors should understand the guidelines specially relevant for them. The consecutive equity investors on the other hand try to minimize the risk of investments and consuming of time struggling to find the best bargains in the market. Besides the general investment guideline, consecutive equality investors should also understand the guidelines that are specially relevant for them, for better decision making. Therefore the choice of choosing to be an aggressive investor or a consecutive investor depends on the decision of the investor. denjax54@gmail.com References Chandra, P (2009). Investment Analysis and Portfolio Management. Tata McGraw-Hill Publishing Company Viceira, L. (2001). Optimal portfolio choice for long-horizon investors with non-tradable labor income. Journal of Finance 56, 70-433 Read More