Market Risks and Opportunities - Example

Introduction We are going to discuss the advantages and disadvantages in the market structure basing our targeton the available market structure. The main aim of the proposal is to provide adequate reasons for investors to raise funds for the art market. Key elements like the market size, risks and opportunities, market opportunities, portfolio construction, and the special acquisition strategies. With all the interest, all this will determine the market structure and the response of the investors. Sole Corporation is a private traded business, they pays monthly dividends to their stakeholders and invest in small sized private businesses, their main aim is to achieve returns from capital gains through debts. Investment Strategies and objectives In order for us to achieve objectives, we seek to invest in several categories of debts and equity securities, with each investment size may vary, all this will depend upon our total assets or availability of capital at the time of investment. (Schleifer, 67) However, investments in debts security have a term of not more than nine years, accrue interest at variable rates, and to a lesser extent, at fixed rates. We seek debt instruments and strategies that pay interest monthly, at a minimum , quarterly, at the same time have fee or interest provision. This is due to any unpaid interest due at maturity. Some debt securities have different interest whereby some portion is added to the principal balance. (Ashenfelter, 46-49). In general, equity investment consist of common stock limited liability company interest. The equity investment in connection with original investment, recapitalizing a business. Target portfolio We have different forms of investments. Senior Debt Security: We seek to invest a portion of assets in senior debts that are also known as senior loans, the borrower typically uses senior debts to cover a portion of needed in the business. The senior debts securities take first on the assets of the business. They may include participation and investment in the syndicated loan market. Senior Subordinate Debt Security: We seek to invest a portion of assets in senior subordinated debt securities, also known as senior subordinate loans and senior subordinate notes. Additionally we may receive other yield enhancement in connection with these senior subordinated debt securities Junior Subordinate Debt Securities: We to invest a portion of assets in junior subordinated debt securities, this is also known us subordinate loans. The junior subordinated debts include second lien notes and unsecured loans. In addition, we may receive other yield enhancement warrants to buy common stock in connection with these junior subordinate debts securities. Market size and composition The size of the market is quite adorable this enhances the chances of making a bigger profit margin in the market. In addition, exchange, division of labor, positive sum relationship is all in consideration when there will be availability of funds. We have readily available market where demand for goods and services gladly purchased what was produced. (Ginsburgh, 103). The investment plan will have an impact on the company profitability; thus, this as well enhances the small markets to focus on increasing their productivity. Rather than understanding the consumers, the customers have the prevalence of choosing what they want in that they have taste and preference. On the sales concept, the demand and supply are at constant equilibrium where we tend to produce and convince consumers to purchase products. The sale concept is also relevant for products consumers do not seek out ordinarily. We always seek what consumer wants to purchase. We produce the products and convince them to purchase the products. On the other hand, we are aware of the society, and the environment at large, we at the same time, promote their affiliate with the environment. Market risks and opportunities. Considering all the facts that any funding will anchor this opportunity, we are going to analyze the proposed effort to develop market for the program and other services in the location. This is all inclusive with an assessment of possible product and services. We wish to provide a plan for the organization to use in increasing its credibility in the market area and to show how the services can meet the needs of local clients. The risks that are available are lack of enough funds to meet demand to our consumers. We also have the competitor who produces the same products in the market. (Pesando, 95). There is a close relationship with customers in various issues; we identify potential partners, understand channel dynamics, structure, and go to market requirements. In addition, we identify and characterize key market participants, sizing and forecasting market demand. It is quite important for any enterprise to find and exploit new market opportunities. It is always important to hunt for new turf to guide against the time when a strong product or service category will become. Skills to find new market opportunity are the lifeblood of business worldwide. In essence, market structure captures all the potential aspects in the market. Market performance The market performance will be determined by the investigation done on the ground. The first issue regards the possibility that production is not the only and the proper fitness measure. We have also assessed the strengths of the link between productivity and profitability. The market performance naturally leads to the productivity-growth and profitability growth links. The investment is determined by the stock market. Most investors compare the stock market in relation to other assets... Others compare the performance of their individual stock holdings upon the return of the overall market. All these comparison are relatively easy. (Ashenfelter, 74-75). Investing through the fund Every investment has advantages and disadvantages. It is quite important to remember that there are some features that are of importance to investors. Rather, any particular feature is an advantage for any firm that all depends on the unique circumstances. Mutual funds provide an attractive investment choice, they generally offer the following features Advantages Professional Management-The professional money managers do research and monitor the performance of the fund purchase. Affordability-Some funds accommodate investors who do not have enough money to invest by setting relatively low amounts for initial purchases. Diversification-Diversification is an investing strategy that can be neatly summed up. Spreading the investment across a wide range of companies can help lower your risk if a company fails. Most investors find it very easy to achieve diversification through ownership of mutual funds. Disadvantages Mutual funds also have features that some investors might view as disadvantages. Lack of control-Most investors cannot reach exact amount for make-up of a funds portfolio at any given time, nor can they influence the fund manager buys and sells Cost on negative returns-Investor must pay sales charges; those are annual fees, and other expenses, depending on how the funds perform and timing o their investment. They will have to pay taxes on any capital gains and the distribution they receive. Lack of Control-Investors typically cannot ascertain the exact make-up of a funds portfolio at any given time, nor can they directly influence which securities the fund managers buys and sells or the timing of those trades. Portfolio construction (risk, return, correlation) Value-and-Income Orientation and Positive Cash Flow- The investment philosophy will analyze the fundamental premium from an investors perspective that has value and income orientation. We focus relatively on companies in which we can invest that has low earnings before interest, taxes, depreciation and amortization that have positive operating cash flow at the time of investment. In seeking income, we typically invest in companies that generate relatively stable to growing sales and cash flow to provide some assurance that they will be able to service their debt and pay any required distributions on preferred stock (Pesando, 123). Risk All investment are subjected to risks. This is to say, past performance is no guarantee of future results. The performance of an index does not represent any particular investment as you cannot invest directly in an index. Diversification, on the other hand, does not ensure a profit or protect against a loss in a declining market. Investments in bonds are subjects to interest rate, credit, and inflation risk. Funds that are concentrated on narrow market sector face the risk of higher share price volatility because high yield bonds are considered speculative; investors should be prepared to assume sustainability that are of greater level of credit risk than with other types of bonds. Foreign investing pose a great risks, including currency fluctuation and political uncertainty (Goetzmann, 91). Stocks of emerging markets are more risky than stock of companies in developed countries. Prices of mid and small-cap stocks often fluctuate more than those of a large company stock. Role of correlation in portfolio construction Correlation is one of the platforms of portfolio construction, along with expected returns and expected volatility. Correlation summarizes the historical relationship between two assets; investors often focus on correlation to frame expectations for how a portfolio may perform over time. Specifically, by combining imperfectly correlated assets, a portfolios expected volatility may be reduced, often without a significant effect on returns. (Graddy, 54). Acquisition strategy An acquisition strategy serves as an avenue for the acquisition portion of the investment life-cycle. It describes the approach for acquiring the capabilities needed to fulfill the objectives of a major capital investment. The primary function of an acquisition strategy is to document the factors, approach, and assumptions that will guide acquisition decisions related to the investment. The development of an acquisition strategy allows for identification of risks and consideration of tradeoffs needed to mitigate those risks. Acquisition strategy development is an iterative process allowing updates and refinements, including modified risk mitigation approaches, as circumstances change. We should have a question in mind that, how will the assets make the existing business more valuable, and how will the stakeholders bring value to the assets they are buying? (Milgrom, 89). Through the strategies, aim is to acquire irreplaceable properties in premier locations with the potential for the significant increase in cash flow and residual value. We have on the ground a diverse portfolio and in-house team who are well positioned to maximize opportunities throughout the entire market structure. On the other hand, we are flexible and able to respond quickly to new opportunities, allowing for the significant increase in size and quality of holdings. Professionals and experts The determinant factor to have a successful business plan, you will have to acquire or bring on board experts and professionals who will intern help in bringing ideas to the company. In addition, experts and professionals are used in a wide range of litigation and their opinion are often viewed as critical-frequently, they can make a decision that can help an organization and at the same time, destroy any opinionated idea. The experts and professionals who will be brought on board are those whose credentials are worth. On the other end, we will have to assess the admissibility of their testimony. (Bernhardt, 110). Asset Allocation The asset allocation accounts for a large part of the variability in the return on a typical investors portfolio. This is true if the portfolio is invested in multiple funds, including a number of securities. Asset allocation is said to be the allocation of an investors portfolio among a number of major asset classes. We have already defined the exposure of each component of an investors overall portfolio to movement in their returns. Advantages of art as an asset class Despite yielding nothing on the profit margin; Art as an asset class has numerous advantages: Art has little correlation with equities, this is to say, when equity prices move in one direction, However, Art cab be useful from a diversification standpoint. During the period of inflation, Art has held up better than other asset classes. Price and Liquidity Risk and Volatility While liquidity has long been regarded as a firm attribute with a negative effect on expected returns, the existence of liquidity commonality suggests that market-wide liquidity may also be an important risk factor in the stock returns. The risk view of liquidity has attracted much attention in recent years and led to several studies confirming that liquidity risk is indeed priced, for example, stocks with greater sensitivities to aggregate liquidity fluctuations–measured by their ‘liquidity betas’–earn higher expected returns. Investors are asymmetrically informed about each other’s preferences. This exposes investors to resale price risk as they face uncertainty about future asset demands of their trading counterparties. Investors’ future preferences are, however, fully or partially revealed through their trades so that the resulting level of preference risk and its associated premium are endogenously determined. (Czujack, 89-90). We also examine the effect of preference uncertainty on the pricing of liquidity risk. Stocks with high liquidity betas, when held in levered position, can expose investors to liquidation need when market liquidity deteriorates. Because investors dislike such costly liquidation, they require a premium to hold liquidity-sensitive stocks. We propose that, when investors are more concerned about future asset credibility during times of high preference uncertainty, they become less willing to hold stocks that are likely to require costly liquidation. Hence, in order to induce them to hold such securities, greater premium must be paid per unit of liquidity beta. This implies that the liquidity risk premium is also time varying and is greater during periods of high preference uncertainty. References Becker, H. (1982), Art Worlds, Berkeley, University of California Press
Bourdieu, P. (1984 [1979]) Distinction: A Social Critique of the Judgement of Taste. (tr) Richard Nice, Harvard University Press, Cambridge, MA. Howkins, John (2009) Creative Ecologies: Where thinking is a proper job, University of Queensland Press Schleifer, A. 1999. Inefficient markets: an introduction to behavioural finance. (Oxford: Clarendon Press) Elton, J ; Gruber, M; Brown, S & Goetzmann (2002), Modern Portfolio Theory and Investment Analysis (John Wiley and Sons) 
 Fraser-Sampson, G (2006), Multi asset class investment strategy. (John Wiley and Sons Ltd) Baumol, W.J. (1986): Unnatural Value: or Art Investment as a Floating Crap Game. American Economic Review, Papers and Proceedings, 76, 10-14. 
 Buelens, Nathalie and Victor Ginsburgh (1993): Revisiting Baumol’s ‘art as floating crap game’. European Economic Review 37, 1351-1371. 
Skaterschikov, Sergey, Skates Art Investment Handbook - The Comprehensive Guide to Investing in the Global Art and Art Services Market (2nd edition), McGraw Hill, Nov 2009 Chapter 1 (Introduction) Frey, B.S. and Eichenberger, R. (1995): On the Rate of Return in the Art Market: Survey and Evaluation. European Economic Review, 39, 528-537. Coffman,R. 1991. Art investment and asymmetrical information, Journal of Cultural Economics, 20, pp. 1-24. Pesando, J. (1993) “ Art as Investment : The Market for Modern Prints.” American Economic Review. Vol.83, No. 5, pp.25-32. Ross, M. H. and S. Zondervan (1989): Capital Gains and the Rate of Return on a Stradivarius, Economic Inquiry 27, 529-540. Ashenfelter, O. (1989): How Auctions Work for Wine and Art. Journal of Economic Perspectives, 3, 23-36. 
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Chanel, O., L.-A. Gérard-Varet and S. Vincent (1996): Auction Theory and Practice: Evidence from the Market for Jewellery. In V. Ginsburgh and P.-M. Menger (eds.), Economics of the Arts: Selected Essays. Amsterdam: Elsevier. Milgrom & Weber, 1982; A theory of Auctions and competitive bidding, Econometrica, 50,1089-1122. Beggs, A. and K. Graddy (1997): Declining Values and the Afternoon Effect: Evidence from Art Auctions. Rand Journal of Economics, 28, 544-65. van den Berg, G., J. van Ours and M. Pradhan (2001): The Declining Price Anomaly in Dutch Rose Auctions. American Economic Review, 91, 1055-1062. Bernhardt, D. and D. Scoones (1994): A Note on Sequential Auctions. American Economic Review, 84, 653-657. Black, J. and D. de Meza (1992): Systematic price Differences between Successive Auctions Are No Anomaly. Journal of Economics and Management Strategy, 1, 607-628. 42 Czujack, C. (1997): Picasso Paintings at Auction, 1963-1994, Journal of Cultural Economics, 21, 229-247. Candela, G. , Scorcu, E (Sep, 1997), A Price Index for Art Market Auctions, Journal of Cultural Economics, , 175-196;p 
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http://www.ppge.ufrgs.br/giacomo/arquivos/econ-cultura/campbell-2004.pdf Bernstein, Peter L. (1992). Capital Ideas: The Improbable Origins of Modern Wall Street. New York: Maxwell Read More