Narach Investment

SETTING THE INVESTMENT OBJECTIVE


The first step for the investor is to set the investment objective. Which would vary for individuals, pension and mutual funds, banks, financial institutions, insurance companies, etc.

For instance the objective for a pension or mutual fund or insurance company maybe to have a cash flow specification to satisfy liabilities at different dates in the future. These liabilities would include redemption, dividends or claim settlement payouts.

For a bank it maybe to lock in a minimum interest spread over their cost of funds.

For the individual investor the objective maybe to maximize return on investment. A more appropriate word would be 'optimize'. As the individual would achieve optimum return at optimum risk. To maximize return would imply the maximization of risk, which would not be practical or sustainable.

It would be quite in order to present a sample investment objective for further analysis and modification to suit the requirements of individual investors. The objective would revolve around aspects of income generation, growth of the investment capital, stability and implementation.

Sample Investment Objective:

Income: Growth: Stability: Implementation:

At the time of the documentation and setting of the investment objective, the investor would be called upon to conduct a SWOT analysis to get a better perspective of his present financial condition and the strengths, weaknesses, opportunities and threats he is faced with. Aspects to consider would be as listed below:

Sample SWOT Analysis:

Strengths: Weaknesses: Opportunities: Threats:

Of course, the investor is welcome to list other strengths, weaknesses, opportunities and threats he may be faced with or even expects to be faced with sometime in the future. The purpose here would be to reinforce and/or increase the strengths and opportunities while restricting and/or reducing the weaknesses and threats.

The next step would be for the investor to document his risk tolerance. A sample would be as stated below:

Sample Risk Tolerance Review:

I have been through the stock market crash of 20XX-XX. Amongst the reasons for coming out relatively unscathed is that I did not sell any stock positions. However, during the up-move I sold stock positions at a reduced level of profit and also at break even points. This has resulted in a reduced level of income generation and investment capital growth; causing an erosion of the investment capital on account of current expenses and contingency provisioning.

Having learnt good lessons over the years, I have concluded that it would be prudent to reduce the risk tolerance levels from high to medium. This would require me to follow the investment systems and processes already known and adopt a more disciplined manner of addressing the stock market.

Thereafter, it would be quite in order to state the investment time horizon. It would be prudent to restrict the time horizon to one year at a time; along with a periodic performance review during and at the end of the investment time horizon. This would be for the primary purpose of improving performance over the subsequent years.

Sample Investment Time Horizon:

The present investment time horizon is for a period of one year; which is January 20XX to December 20XX. This would see me go through four quarters; which are January − March, April − June, July − September and October − December.

Last but not the least, the investor must state and document the matters that would require his attention in the future. Some such matters are listed below:

Matters for attention in the future:

As a word of caution and a disclaimer of sorts, the investor must appreciate that the above documented sample investment objective, is but a sample. The investor would be required to document his own investment objective; and subsequently analyze and appreciate whether he has been able to achieve such investment objectives. It would be fair to say that the setting of, monitoring; and subsequent analysis and revalidation of the investment objective against real time investment results is a dynamic process.