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Saturday, 05 December 2015 11:31

Investment management

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What is Investment management

Investment management involves first making an 
investment decision and next protecting and promoting the Capital value of such investments. In this process, there is need for makinginvestment analysis at two levels namely at macro level- market analysis.

Market analysis involves the analysis of the market 
trends of some indicators like prices, volume of trade etc. Company analysis comprises of the study of companys fundamentals in terms of its operational and financial results. Then the analysis should extend to comparison of the companys performance with that of the industry to which it belongs and the market as a whole.

Components of Investment Management

Chart I shows what is investment and its components namely:

(a) Investment analysis,
(b) Investment decision making
( c ) review and monitoring of investment based on research.

The study of fundamentals will reveal the industry and the 
companies to invest in while the study of technicals will tell us the timing of purchase and sale decisions.

There are four types of decisions which an investors can make , which are explained below briefly:

(a) Buy Decision :
When investment analysis shows that a 
company share price is undervalued in terms of the fundamentals and expectations of the company relative to other companies in the same industry, its share recommended to be bought.
(b) Sell Decision: When investment research reveals that a company share is overvalued in the market, relative to its fundamentals, and expectations based on some norms like P/E 
multiple, book value or present value of discounted cash flows etc. then that share is recommended to be sold.

( c ) Hold decision : when research shows that a companys future performance is uncertain and fundamentals and the market do not reveal any reliable trend, then a hold decision has to be taken.
(d) Average Up/Down : when the market trend is against your position, say you want to sell, when the market price is falling then small doses of purchase have to be effected to average down your price per share. On the reverse side, if you want to buy, but the market price is countinuing to rise, instead of falling as expected by you, then slow doses of sales have to be made to average up your price per share.

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