Investment is putting aside and employing money in financial instruments in the present, with the expectation of a positive rate of return in the future. Putting it briefly, investment is a sacrifice in the present in the expectation of a future gain.
By extension, Investment management is the art of administering the employment of money in financial instruments in the present, with the expectation of a positive rate of return in the future. These individual financial instruments are kept in a case called the portfolio.
The questions answered above are:
- What is investment? and
- What is investment management?
At an individual level, a person does a job of work and earns an income comprising of pay and perks. Here money is the medium of exchange. The person would sensibly use his income in the following fashion:
1. Provide for current living expenses (or consumption).
2. Provide for personal requirements and deferred expenses.
- To provide for emergency requirements.
- Revitalize: Employ for gainful returns in the future (or invest).
Given the beauty and semantics of the English language; it would be relevant to mention at this stage that, other words and phase like "investment portfolio management", "portfolio management" and "portfolio investment management" would also mean and address the same matter of "Investment Management".
Further, we may also call this subject matter "Investment Analysis and Portfolio Management". This would indeed bring out the demarcation between the analysis of the investment vehicles and their underlying instruments before an investment is made in them on the one hand, and the management of the portfolio of such investment instruments on the other. Of course, this portfolio management would pertain to the period of time while the investments are held in the portfolio and would also address matters of portfolio performance measures and review after such investment instruments have been divested.
To bring focus and concentration upon the subsequent action required to be taken, it would be appropriate to document and have at hand an executive summary. A sample outline of such a documentation is explained below:
To start with the investor may state his background, along with any prior experience he may have with regard to transacting in the stock market amongst the other financial markets and the level of success he may already have achieved. After which he may state his business concept with regard to how he would address the stock market with a view towards achieving his investment objectives. He would then list his funding and their sources; which would indeed initially be a part of his savings which he may have decided to revitalize. Of course, he may also source additional funds from like minded individuals; where he would be required to state a minimum assured return to them.
After which he may conduct a market analysis. Usually he would be able to do this through a "top down" or a "bottom up" approach. The former (that is, the top down approach) would be to start the analysis from the macro economic aspects of the market and work his way down through the industries and service sector groups and finally list the specific corporate entities and their overlying stocks which are likely to do well during the investment time horizon. While in the latter (that is, the bottom up approach) the analysis would start from the stocks and their underlying corporate entities and working their way up through the industries and service sector groups to the larger macro-economic parameters, with the same view towards short listing stocks which are likely to do well during the investment time horizon.
The investor would also be required to do a competitive analysis with regard to the tools and measures he may have at hand or developed along the way; with a view to assess whether he would have any competitive advantage over the investing population. At this stage it would be prudent on the part of the investor to also list his investment philosophy, investment system and investment methodology; while providing for their improvement through better risk control and investment capital management with the passage of time over the investment time horizon.
While providing for a measurement of portfolio performance, the investor may also consider listing and documenting a time line and milestones over the investment time horizon. Further, in case he projects a growth of his investment system and platform into an organization; he would be well placed to list a proposed management and executive team; while also providing for governance, ownership, control issues and its financials; even if these aspects are hypothetical at this initial stage.