What Is an Investment View?
An investment view accounts for how an individual or firm perceives the market along with the underlying decision-making processes that lead to an investment. Often one's investment view takes into account the external market environment along with one's available resources and risk profile. An investment view will examine an investment or project to determine if there is an attractive risk-reward tradeoff.
- An investment view describes an investor's market outlook and how they perceive the costs vs. benefits of a potential investment.
- One's investment view will vary deepening on macroeconomic factors, a particular investment's underlying fundamentals, and the investor's own risk profile and funds available to invest.
- Having a clear investment view can make choosing investments easier and more effective.
Understanding Investment Views
An investment view is the best way to ensure you make the best decisions for your household or business. Some investors may look for "value," which they determine by looking at a company's price-earnings ratio (P/E) compared to the industry norm, while others may seek a reliable, dividend-yielding stock. Of course, as people age or experience other material changes in life, their investment view often changes.
Having a firm and clear investment view can help investors maximize profits by focusing their efforts on investments that they know and understand. At its core, a solid investment view will encompass general ideas, such as profit potential and risk tolerance, as well as more specific items like preferred industries and economic sectors.
How an Investment View Works
One's investment view differs from situation to situation but always keeps the investment objective as the basis of its analysis. The investment objective is the primary goal of the investment, and this goal will depend on many factors. The most common financial investment objectives are safety, income, and growth. These goals are often mutually exclusive, so the investor must choose one goal to use in forming their investment view.
Business decisions may have several different reasons for their building a brand or reducing potential entrants to the industry. However, when an investment view is taken, there will be a structured look at the cost-return relationship.
Different Investment Views
If safety is the underlying factor in your investment view, you may wish to make conservative investments. Such conservative investments include government-issued securities in stable economic systems, corporate bonds issued by large, stable companies, government Treasury bills (T-Bills), certificates of deposit (CD), or the fixed-income municipal and government bonds. The safest investments usually have the lowest rate of income return or yield.
If high-risk, high-reward is instead your view, taking bets on growth stocks with no current earnings but a lot of potential could be your strategy. Leveraging bets with derivatives contracts may also fit a more speculative view of investing.
A bearish investment view is typically associated with a negative market outlook, with bears placing bets that the market will fall. Because they are pessimistic concerning the direction of the market, bears use various techniques that, unlike traditional investing strategies, profit when the market falls and lose money when it rises.
The most common of these techniques is known as short selling. This strategy represents the inverse of the traditional buy-low-sell-high mentality of investing. Short sellers buy low and sell high, but in reverse order, selling first and buying later once -- they hope -- the price has declined.
A bullish view would instead be indicative of an optimistic outlook, with the expectation of price increases. Investors who adopt a bull approach purchase securities under the assumption that they can sell them later at a higher price. Bulls are optimistic investors who are attempting to profit from the upward movement of stocks, with certain strategies suited to that theory.