What is an investment theory?
Investment theory is a concept that is based on considering a number of different factors related to the investment process. Ideally, the theory will include a closely exploring a wide range of factors to determine how to choose the right investment for a specific goal or purpose. Although there are approaches to investment theory that include the use of a number of other theories in the process, some economists divide this task into four areas that only anyone can understand.
The first key factor in investment theory has to deal with the goal for the investment portfolio. Determination of how to diversify the portfolio and to balance this diversification with the type of individual securities is the idea of protecting the investor from a decline in one market by ensuring ascension of other holdings. This factor is known as the theory of modern portfolio the key to the investment process for investors who have specific objectives of the portfolio generated.
Another important aspect of investment theory concerns the evaluation of investment based on the degree of risk and potential return. Here is the idea of helping the investor to focus on possibilities that carry an acceptable amount of risk and at the same time provide the greatest amount of return. This element is the basis for the price of capital assets prices and can have a big difference whether the investor makes the right decision for his portfolio. A similar approach, known as the theory of arbitration, focuses more on assessing the degree of risk associated with the investment option, but still serves the purpose of helping the investor to decide whether the potential return is worth volatility associated with the given option.
A well -created investment theory will also consider the amount of information available about both investment options and the general market or market condition where the possibility is traded. This concept, known as an effective hypothesis on the market, has that all information that is relevant to D decision -makingCustomary, purchase or sale must be easily accessible to the investor to make the market truly effective. Given that knowing the past history, current status and potential future risks associated with any investment is the key to proving a wise decision, the investor should determine whether this situation exists before it decides to engage in the investment.
In essence, the investment theory of receiving informed investment decisions. With regard to the goals and goals of the investor, it is possible to create a portfolio to help meet these goals. In order to wisely choose the right investment, it is important to know everything you need to know about the investment and the market on which it is traded. The development of investment theory, which includes all these factors, significantly increases the chances of success and will also help the investor avoiding investment possibilities that are not in his best interest.