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The mention of conservative investing and what you often get is people who think it means the money goes to the biggest, most stable businesses, which in turn guarantees the security of the principal. If invested capital also appreciates the value, it's even better. While it is true that businesses (for example, public utilities) are defined as conservative, simply buying large, well-known companies is not consistent with the goal of a successful conservative investment approach. Instead, this view increases the confusion between conservative action and traditional behavior.

Definitions

Conservative investing, when understood and applied properly, is not a low risk, low return strategy. Investors must understand two definitions in order to evaluate suitable funds for conservative investment.

1. A conservative investment is one that carries the highest probability of saving purchasing power your capital with the least risk.
2. Conservative investing is about understanding what a conservative investment is and then following the specific course of action required to properly determine if an investment is truly a conservative investment or not.

Where many investors hesitate in trying to invest conservatively, they blindly believe that by buying any security that qualifies as a conservative investment, they are in fact conservative investors. In other words, such investors simply focus on the first definition.

This point of view is limited and costly. A successful conservative investment approach requires not only an understanding of what constitutes a conservative investment, but more importantly, the right approach to determine what truly qualifies as a conservative investment.

Characteristics of a conservative investment

If, based on the first definition, investors already know what qualifies as a conservative investment, one needs to know what characteristics define a conservative investment, where the second definition comes into play. There are three categories that investors can use to define conservative investments.

• Safety factor
  Obviously, any conservative investment must be able to weather market storms better than others. To do this, it is necessary to highlight certain characteristics. First, the business must have a low cost of production.

  Being a low cost producer, the main benefit is that when a bad year hits the industry, the chance of making a profit or reporting a smaller net loss is available. Second, the business must have a strong research and marketing department. A company that cannot compete by keeping abreast of market changes and trends is doomed for the long term. Finally, management must have financial skills. At the same time, he will be well versed in such things as unit costs of production, maximizing returns on investment capital and other essential elements of business success.

• The people factor
  This is a fairly understandable qualification for a conservative investment. But note that great people can only be useful after the business has shown signs of the aforementioned quality. Consider Warren Buffett's advice:

  "When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, the reputation of the business remains intact."

  A small company can succeed on the heels of one or two exceptionally talented people. But as the business grows, people across the organization must be considered if the company is to succeed and remain a conservative investment.

• Business characteristics
  This third quality takes a little more work for investors, but it's worth it. Here, the goal of investors is to determine what advantages (or disadvantages) can prevent the business from growing and making more profits, despite the satisfaction of the first two conditions. One important thing to consider is the competitive business landscape; the presence of many competitors or the relative ease with which a new competition can enter can affect the best companies. The potential for over-regulation can also be a game changer.

Even when a company satisfies the obvious conditions of conservative investment, you should always keep this third condition in mind. The following examples illustrate this concept further.

Those who fail and those who pass

Great examples of those companies that pass the test include names like Coca-Cola (KO KOCoca-Cola Co45.85-0.26% Created with Highstock 4.2.6) , Walmart (WMT WMTWal-Mart Stores Inc89. 16-0. 59% Created with Highstock 4. 2. 6) and Johnson & Johnson (JNJ JNJJohnson & Johnson140. 11 + 0. 02% Created with Highstock 4. 2. 6). These companies have demonstrated the strengths of their franchises over and over again. More importantly, these companies are likely to continue to have very favorable future prospects. Coke essentially competes with Pepsi and Dr. Pepper and no one else. What's more, it's unlikely that entrepreneurs are sitting in garages thinking about starting the next big soft drink company.

Since Walmart exists and is doing well, this should raise a red flag for most other retailers, with the exception of Target. Remember Circuit City, which used to be #2 at Best Buy in e-retail? Now it's bankrupt, thanks in no small part to Walmart. Of course, once the passing company has been identified, the price of the shares only matters in determining the resulting value.

Bottom line

Investing conservatively is not just about identifying large, well-known businesses, but the process that determines why a particular company qualifies as a conservative investment. And as you can see from the titles above, being a conservative investor can lead to some of the most reliable and respectable profits in the market.

Of course, along with speculators and investment in its purest form, a considerable part of depositors is engaged in both. INVESTOR AGGRESSIVE

An aggressive investor is an investor who is willing to take risks in order to receive high dividends.

An aggressive investor is a recipient of securities, ready to take risks for the sake of high dividends.

INVESTOR AGGRESSIVE - see. AGGRESSIVE INVESTOR

Depending on the attitude to the expected return and risk, investors are divided into three groups: conservative investor, moderately aggressive and aggressive. For each of the groups, the most significant indicators are identified that have the greatest influence on the choice of investment object.

Note that the combination high yield- high risk" is classical in its essence. An aggressive investor, gravitating towards the specified combination of profitability and risk factors, nevertheless, strives to reduce risk with the help of insurance. In Russia, there is practically no investment risk insurance system, just like

A medium growth portfolio is a combination of the investment properties of aggressive and conservative growth portfolios. Along with reliable securities, this includes risky stock instruments. At the same time, an average capital gain and a moderate degree of investment risk are guaranteed. The most popular portfolio among investors who are not prone to high risk.

These goals may be alternative and correspond to different types of securities portfolios. For example, if the main goal is to earn interest, then preference may be given to an aggressive portfolio, consisting of low-liquid and high-risk securities of young companies, which, however, can, if things turn out well, bring high interest. Conversely, if the most important thing for an investor is to ensure the safety and growth of capital, then the portfolio will include securities that have

Let's say an investor owns shares of company A and company B, i.e. The investor's portfolio includes shares of two companies. Company B, however, has been around for decades, is in a mature growth stage, generates significant cash flows, and is known for high dividend stability. Company A is a newly formed venture capital company that is characterized by aggressiveness, rapid growth and extreme volatility in profit and loss and consequently in the amount of dividends paid. On the basis of statistical observations carried out over a number of years, the probabilities of obtaining one or another amount of profitability on the shares of these companies are known. The characteristics of possible rates of return and the probability of their achievement are given below.

As a rule, the investor constantly changes the type of portfolio, based on the stock market conditions and strategic goals. Specific portfolio strategies (aggressive, moderate and conservative) are determined by the following circumstances

An aggressive investor seeking to get the maximum return on his investment purchases shares of industrial joint-stock companies (corporations). The conservative investor buys mainly bonds and short-term securities. Having a low degree of risk (Table 8.1).

Situation 2. The company has in its securities portfolio shares of enterprises engaged in the extraction, transportation and sale of petroleum products, shares of enterprises producing chemical products based on petroleum products. This portfolio of financial investments can be recognized as aggressive and risky. All issuers are links in a single technological chain for the production, transportation, processing and sale of oil and oil products. The bankruptcy of one of the enterprises will inevitably lead to the collapse of the rest, which means for the investor the loss of financial investments.

In world practice, a more detailed differentiation of the types of potential investors is provided: 1) conservative 2) moderately aggressive 3) aggressive 4) experienced 5) sophisticated. The main types of investors are shown in Table. 16.1.

The goal of conservative investors is the safety of investments. Moderately aggressive investors seek not only to keep the invested capital, but to get a return on it, albeit a small one. Aggressive investors are not satisfied with the percentage of invested funds, but are trying to achieve an increase in capital. Experienced investors will try to provide both profit, capital increase, and securities liquidity, i.e. their rapid implementation on the market, if necessary. The goal of sophisticated investors is to maximize returns.

Aggressive investor. This term characterizes a business entity that selects investment objects (instruments) according to the criterion of maximizing the current investment income despite the high risk associated with them.

The objective reason for the increased concentration of capital lies in the actions of aggressive investors and speculators to take over corporations. To counteract corporations are developing appropriate measures, called shark repellents. To make the takeover unprofitable, the contract with the top manager of the corporation includes conditions according to which the acquiring investor must pay high bonuses to the dismissed management personnel. These are the so-called golden parachutes.

It is generally believed that a widow is a more conservative investor, while a student is more aggressive. In other words, we should expect the widow to be primarily interested in the security of the return on her investment from the student, we can expect him to be willing to take risks, counting on a higher return.

Buying bonds is the best choice for an investor whose main goal is a stable current income and high reliability of investments (bonds are financial instruments with a fixed income). For example, conservative investors buy bonds with the intention of earning a steady income up to the maturity date and then repaying the principal. However, they are not immune from inflation risk and depreciation. fixed amount interest income. More aggressive investors use bonds to exercise trade deals, pursuing the goal of obtaining the maximum possible income by selling bonds at a price higher than their purchase price. The value of a bond issued when market rates were high increases during a period of decline interest rates, as the number of investors wishing to purchase a financial instrument, the yield of which is higher than the current rate, is growing. Therefore, in such a situation, selling the bond at an increased price (with a premium) will bring its holder a greater profit than if he decided to wait for its maturity. The converse is also true if market rates increase, selling the bonds at a reduced price (at a discount) will mean a loss for the holder.

Another, more complex method is to analyze each trade (tick) and constantly recalculate the index, multiplying the price change by the number of shares (contracts). Some analysts prefer to analyze only large trades (more than 10,000 shares), believing that they are made by well-informed, experienced investors whose aggressiveness is determined by the price concessions they are willing to accept. Another group of analysts also takes into account price changes and volume, but calculates the index based on the results of the entire trading day. In this case, the daily price change is multiplied by the day's trading volume (see Figure 5.2).

The priority of certain goals determines the type of portfolio. For example, if the main goal of an investor is to ensure the safety of investments, then. in his conservative portfolio, he will include securities issued by well-known and reliable issuers with low risks and stable average or low returns, as well as high liquidity. On the contrary, if the most important thing for an investor is capital growth, then preference will be given to an aggressive portfolio consisting of high-risk securities of young companies. Conservative investors include many middle-aged and elderly people, as well as most institutional investors, investment funds, pension funds, Insurance companies and etc.

He applied his theory to the merger boom of the late 60s, and made money, by his own admission, in all weathers. At first, he watched the merger bacchanalia that inflated corporate earnings and impressed large institutional investors. Soros believed that the addiction of overly aggressive managers would drive up the stock prices of the merged firms. He actively bought these shares. And then he sold them and made good money on the decline that soon followed.

Finally, the price reaches the levels calculated by seasoned investors. They start to get rid of assets. Everything is as accurate as it was when you bought it. At the same time, the asset is still a "hot pie" and investors do not experience problems with liquidity. Newspapers and television are screaming with might and main about the finest hour of the underlying asset and the fall of the quoted currency, predicting its imminent death and describing the options and advantages of alternative investments. By this time seasoned investors have almost sold their volumes. The majority of players perceive a small price reduction as another correction and are in a hurry to buy more. Having suspected that something was wrong, the rest of the competent investors and speculators decide to take profits when the price approaches its maximum values. It is not surprising that the price rises towards the reached peak again, perhaps almost reaches it or even slightly exceeds it, but then begins to fall sharply. At this stage, the game has already been made for most experienced investors, and many of them are looking for other assets (read - "leave"), and the most aggressive ones generally sell. As a result, supply increases, demand falls, and sometimes disappears altogether, because everyone who wanted to buy has already bought. Figure 9.1. the moment of peak formation is shown.

The only critical trend change occurs at the V 09 trough. By not applying the entry rules, the most aggressive investors will receive a direct buy signal. When the market drops quickly from the W09 low, we understand how important it is to work with the stop loss rule, no matter how promising a trend reversal signal may look. On the other hand, a trend reversal in the W10 trough shows how far from the stop loss levels an entry point can be placed if, after the time Fibonacci target is reached, a conservative entry rule is applied.

This approach is conservative because it has the disadvantage that a trend change can be completely missed if a strong trend reversal occurs instead of an a-b-c correction. More aggressive, buying-willing investors might do better by submitting an order before reaching a point where the close is above the high of the day since lowest level(and vice versa for a sell signal), as shown in Fig. 3-13.

As already noted, an important type of investment in Russia free funds are investments in securities, that is, securities portfolio management, which includes planning, analysis and regulation of the composition of the portfolio, work on its formation and maintenance in order to achieve its goals while maintaining the required level of its liquidity and minimizing the costs associated with portfolio. Let's dwell on this in more detail. The goals of investing in securities are to receive interest, preserve capital, and ensure capital gains based on the growth in the market value of securities. They can be alternative and correspond to different types of securities portfolios. For example, if the priority is to receive interest, then preference is given to aggressive portfolios, consisting of low-liquid and high-risk securities of companies that, however, can, if things go well, bring very high interest. If the most important thing for the company is to ensure the safety and growth of capital, then the portfolio includes securities with high liquidity issued famous investors with low risks and pre-expected average interest payments.

The aggressive rational investor fits the isoline with smaller

AGGRESSIVE INVESTOR - A buyer of securities who is willing to take risks in order to receive high dividends. Usually buys shares.

The difference between the objects in the composition of the investment portfolio, the purpose of investment, the attitude to risk and other conditions determines the variety of types of investment portfolios. At the same time, the main classification features are the object of HHBI staging, the nature of the formation of investment income, the attitude to risks, the degree of liquidity of the portfolio, the conditions for taxing investment income, etc. The type of investment portfolio reflects the type of the investor himself (aggressive, moderate, conservative).

Certain differences are also formed in the formation of the rate of return on invested capital. If for real investments this indicator is mediated by the level of upcoming operating profit, which is formed under the conditions of objectively existing industry restrictions, then for financial investments, the investor himself chooses the expected rate of return, taking into account the level of risk of investments in various financial instruments. A cautious (or conservative) investor will choose

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The financial investor is physical or entity investing in securities for financial markets. In other words, an investor engaged in .

As we have already found out, financial investors make money by investing in securities. The tool they use is .

An investment portfolio is a set of securities that make it possible to carry out those tasks that financial investor placed in front of him.

It is worth noting that each financial uses its own investment strategy and pursues individual goals and that is why each investor has a different set of securities included in his investment portfolio. All securities in the portfolio differ in levels of profitability and riskiness, as well as liquidity. The optimal ratio of securities in the portfolio reduces financial investor and allows you to earn a stable income.

Before starting an investment, each financial investor must decide on a strategy. The success of investments directly depends on compliance with the chosen strategy.

Based on the chosen strategy, the following types of financial investors are distinguished

• aggressive financial investor
• conservative financial investor
• moderate financial investor.

Aggressive investor

Aggressive investor, as a rule, is motivated by the goal of obtaining maximum income. it primarily trades in stocks, futures and other high-yield securities and high-risk instruments.

Aggressive financial investors take on a high level of risk of their own investments, and often, in the portfolio of an aggressive investor there are no securities with a high level of reliability at all.

Such investors are not afraid of innovative and fresh ideas and solutions. They are actively exploring new markets, new investment projects and investment ideas. In other words, they actively participate in the search for new highly profitable sources of investment.

This investment strategy works very well in the short term. The purpose of such investments quick receipt arrived.

conservative investor

conservative investor on the contrary, the main goal is the reliability of their own investments.

He is not chasing a big income, for conservative financial investor it is more important to save your capital.

The object of investment in this case are the most liquid and reliable assets. For example, government securities, bonds and shares of large stable corporations, etc.

In most cases conservative investor makes its investments on a long-term basis, this is also one of the factors for reducing investment risks.

Such an investment strategy is suitable in times of uncertainty in the markets, in times of crisis and instability.

Moderate investor

Moderate investor tries to keep a balance in his investment portfolio, by combining various securities with varying degrees of reliability and profitability.

The object of investment is government securities, or shares of large, well-known and stable companies and corporations.

This gives the investor the opportunity to avoid bankruptcy and minimize their risks.

There are three types of investments: aggressive, conservative and moderate.

conservative investment guarantee you almost 100% safety of your capital and, some, even a small percentage of income. Such investments are considered risk-free. These include:, insurance savings programs, pension capital accumulation products, government bonds and some large issuers, usually in which the government has a high stake, real estate. In fact, each of these tools guarantees you the safety of your funds, and even a slight increase in it.

So, under insurance programs, you are guaranteed from 3% to 5% growth in your income, possibly more, but 3-5% is guaranteed to you for sure. This is because insurance companies use a very conservative investment policy. In deposits, in general, everything is transparent and understandable. You initially, at the conclusion of the contract, know your profitability and know how much you will receive at the exit. At the same time, the state guarantees the return of deposits in the amount of 700,000 rubles, in case something happens to your bank.

The management of citizens' pension funds is controlled by the state and you can trust that the regulatory authorities will not let management companies lose your pension capital.

The disadvantage of conservative investment is its low profitability, which is offset by a big plus - a guarantee of capital safety.

AT aggressive investing . The risk of losing part, or even all, of capital is very high. The volatility of such instruments is very high. But the yield on such instruments, as a rule, turns out to be quite significant.

Such instruments include securities - stocks, bonds of small, medium and some large companies, and derivatives of securities - futures and options, .

Equity mutual funds can also be called aggressive, especially shares of small and medium-sized enterprises - the so-called second-tier shares, and sectoral mutual funds.

Moderate investment is somewhere between aggressive and conservative investment instruments. The return on such investments is usually higher than on conservative ones. It can reach the yield of aggressive instruments, but their risk is also much higher than conservative ones. And like aggressive ones, there is a possibility of losses.

Such investments include mutual funds of mixed investments, where the name itself suggests that in investment policy of this mutual fund there are both aggressive and conservative instruments.

Bonds of large issuers and mutual funds of bonds of non-state companies. As a rule, such bonds have a bond yield that exceeds a similar yield. government bonds on the same time interval. The selection of this type of bonds is associated with an assessment of the issuer's solvency, so as not to be among the losing investors in the event of the issuer's bankruptcy. Also shares of the largest companies, the probability of bankruptcy in the foreseeable future is unlikely.

PAMM accounts in which you have distributed and minimized risks.

Remember: the larger the guarantee, the more reliable the financial product or the one who offers it, the less interest income will be.

Accordingly, the fewer guarantees, the higher the income.

What type of investment would you choose? And why? Please share your opinion!

1. An investment is considered risk-free if
return on this investment is guaranteed
as a result of unforeseen events, payments will not be made, or you will receive only a small percentage, and the papers themselves will not be redeemed

2. The main sources of investment are
savings of the population
profits received by enterprises

3. Objects of investment and savings are
consumer credit
financial and tangible assets
current savings

4. Conservative investors are characterized by
minimization possible risk, the main task is the reliability of investments
propensity to take risks
loyal attitude to risk, including it in your investment strategy

5. What methods can a financial manager use when forming an investment portfolio
accounting for the present value of earnings
any of the above
any combination of the above
payback method
average profit calculation

7. A security means
active stocks and bonds
a financial document sold and bought that gives the owner the right to receive monetary profits in the future
share certificate

8. Brokerage activity is recognized
making civil law transactions with securities as an attorney or commission agent acting on the basis of
contracts - orders or commissions, as well as powers of attorney for such transactions
making transactions on one's own behalf and at one's own expense by announcing purchase or sale prices

9. Objects investment activity are
investors, customers, contractors
newly created and modernized funds and working capital in all branches and spheres of the national economy of the Russian Federation
cash, bank deposits

10. The main measures of regulation of investment activity are aimed at
a decrease in the share of budget allocations and an increase in the share own funds enterprises, private investment and borrowed funds
decrease in the share of own funds of enterprises and increase in private investment

11. The composition of the business plan investment project and the level of detail depends on
the area to which it belongs
none of the above
the size of the future project
the nature of the enterprise being created
from all of the above

12. The main reasons for the emergence of projects are
reaction to political pressure
all of the above
excess resources
unsatisfactory demand
entrepreneurial initiative
interests of creditors

13. Purpose of risk analysis
compare the integral level of risk and the marginal level of risk
provide potential partners with the necessary data to make a decision on the expediency of participating in the project

14. Constant prices for project evaluation calculation data are
prices valid at the time of calculation
prices for the sale of the product
prices that were constant over the longest period of time the product was sold

15. Production costs include
direct material costs
none of the above
all of the above
labor costs
overheads