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Investment

August 6, 2009
The term investment refers to the act of putting things (money or other claims to resources) into others’ pockets (business management, saving, finance, economics).
Why to invest?
To multiply the money.
To reduce the tax.
To fulfill the future needs.
Types of investment:
The different types of investments are depending on two levels of risk tolerance: high risk and low risk.
Investment types:
1. Conservative
2. Moderate
3. Aggressive.
Conservative:
This means that they put their money in interest bearing savings accounts, money market accounts, mutual funds, US Treasury bills, and Certificates of Deposit. These are very safe investments that grow over a long period of time. These are also low risk investments.
Moderate:
This means they put their money in real estate. Moderate investing may be low or moderate risks.
Aggressive:
Investors commonly do most of their investing in the stock market, which is higher risk. They also tend to invest in business ventures as well as higher risk real estate. In some time, this works out just fine, and in other cases, it doesn’t. It’s a risk.
Investment risk:
There are three types of risk in investment:
ᅡᄃ Business risk
ᅡᄃ Valuation risk
ᅡᄃ Force sale risk.
Business risk:
It is the potential for loss of value through competition, mismanagement, and financial insolvency. There are a number of industries that are predisposed to higher levels of business risk (think airlines, railroads, steel, etc).
Valuation risk:
Recently, I found a company I absolutely love (said company will remain nameless). The margins are excellent, growth is stellar, there is little or no debt on the balance sheet and the brand is expanding into a number of new markets. However, the business is trading at a price that is so far in excess of it¬タルs current and average earnings, I cannot possibly justify purchasing the stock.
Why? I¬タルm not concerned about business risk. Instead, I am concerned about valuation risk. In order to justify the purchase of the stock at this sky-high price, I have to be absolutely certain that the future growth prospects will increase my earnings yield to a more attractive level than all of the other investments at my disposal.
The danger of investing in companies that appear overvalued is that there is normally little room for error. The business may indeed be wonderful, but if it experiences a significant sales decline in one quarter or does not open new locations as rapidly as it originally projected, the stock will decline significantly. This is a throw-back to our basic principle that an investor should never ask “Is company ABC a good investment”; instead, he should ask, “Is company ABC a good investment at this price.”
Force sale risk (time late):
Your investment analysis may have been absolutely correct but because you imposed a time limit, you opened yourself up to a tremendous amount of risk.
Stocks
By Arivazhagan Arutchelvam A, On 2/25/08 12:25 PM
Stocks
Stocks are shares in a company. When you invest in a company¬タルs stock you own a part of the company and when the company makes profit your share value increases.
Stocks beat all other alternative investments such as bank accounts, bonds, real estates and commodities. If you buy a share or shares of stock in a public company, you become a part owner of that company. As a shareholder of one share of Microsoft, you enjoy the same basic privileges and rights as Bill Gates who owns millions of shares. In addition, you will have the right to vote for Microsoft¬タルs board of directors, the shareholders¬タル representatives who keep track of the important issues of the company. They will, in turn, hire officers such as Chairman Gates to run the company.
Types of Stock:
Common Stock:
These are normal type stock with voting rights for the stock holders.
Preferred Stock:
Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.
Convertible Preferred Stock:
Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date.
Share Holders:
A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Shareholders are granted special privileges depending on the class of stock, including the right to vote (usually one vote per share owned) on matters such as elections to the board of directors, the right to share in distributions of the company’s income, the right to purchase new shares issued by the company, and the right to a company’s assets during a liquidation of the company. However, shareholder’s rights to a company’s assets are subordinate to the rights of the company’s creditors.
Buying:
There are various methods of buying and financing stocks. The most common means is through a stock broker. There are other ways of buying stock besides through a broker. One is the direct purchase from the company itself through Direct Public Offerings sold by the companies
When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyers ownership, or by buying stock on margin.
Selling:
Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.
As with buying a stock, there is a transaction fee for the broker’s efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction.
After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings.

Advantages:
1) Stocks earn more money when compared to the other investments.
2) A stockholder or shareholder has voting rights that bondholders and bank depositors do not have.
Disadvantages:
1) Stock prices often go up and down. They are never guaranteed.
2) A shareholder may lose part or all of his money.
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