Download pdf - Investment V

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Investment is an activity that is engaged in by peoplewho have savings, i.e. investments are made fromsavings, or in other words, people invest their savings indifferent assets depending on their risk and return.

Investment can be either marketable as well as nonmarketable securities

Investment is the employment of funds with the aim ofgetting returns .

In financial sense, It is the commitment of funds whichhave been saved from current consumption with thehope that some benefits will be received in the nearfuture in the form of interest ,premiums, dividends,pension benefits or appreciation in the value of theircapital.


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In the economic sense, investment means the net addition

to the economys capital stock which consists of goods and

services that are used in the production of other goods and

services. Investment in this sense implies the formation of new and

productive capital in the form of new constructions, plant

and machinery, inventories , etc. Such investments

generate physical assets.

Thus , it a reward

for waiting for money .


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a) Individual investors-

Individual investors are large in number but theirinvestable resources are comparatively smaller

they lack skills to carry out extensive evaluation

and analysis before investing.b) Institutional investors-

Institutional investors are the organizations with

surplus funds who engage in investment activities .E.g. Mutual funds , banking , non- banking

companies , insurances companies. They invest in

profitable avenues.


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Speculation is usually a short run phenomenal.

A speculation usually involves the purchase of a saleableasset in hope of making a quick profit from an increase inthe price of an asset which is expected to occur within fewweeks or month.

A speculator assumes high risk often without regards for

the safety of his invested principle, to achieve large capitalgains.

Speculation is engaged in buying low and selling at a highprice.

A speculation in stock market is an inspiration to crores ofinvestors and there is no stock market without it is basedon passed experience.

A persons anticipation makes him invest in these avenuesthinking that the prices will rise in the future.


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It is a courageous and costly decision .

Success in speculation requires highly specialized

and talented knowledge but no speculation can win

all the time.

No investor ever becomes wealthy without

speculating in something.

Speculative activity adds to market liquidity .


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a) Bull-

A bull buys shares in the expectation of

selling them at a high price in the future.

b) Bear-

A bear buys shares is the expectation of a fall in price with theintention of buying the share at a lower price at a future date.

c) Lame duck -A lame duck is a bear speculator he finds it difficult to meet hiscommitments and struggles like a lame duck this happensbecause of non availability of securities in the market which hehas , agreed to sell and at the same time , the other party is not

willing to postpone the transaction.d) Stage-

A stock market operator who is much more cautious in hisdealings compared to bull and bear . A stag neither buys or sellssecurities but merely applies for shares of a new company as if

he was a genuine investor.


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Investor Speculator

1. Planning HorizonAn Investor has a relatively longer planning

horizon (at least 1yr).

A Speculator has a very short planning

horizon.(few days /few months).

2. Risk

An Investor is a low or a moderate risk taker. A Speculator always takes high risk.3. Return Expectation

An Investor seeks a moderate or low rate of

return which depends on the amount of risk.

A Speculator looks for a high rate of return in

exchange for the high risk borne by him.

4. Basis for decisions

An Investor attaches greater significance to

fundamental factors and attempts a careful

evaluation of the prospects of the firm.

A Speculator relies more on market tips,

technical charts, price movements ,inside dope

and market psychology

5. Leverage

Investor uses his own funds . Speculator uses his own funds and heavilydepends upon borrowed funds.


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Investor Speculator

6. Safety

Investors are careful while selecting the

securities (consider safety ).

Speculators focuses more on returns than

safety.

7. Sources Of Income

Earnings of enterprises . Change in market prices.

8. Physiological Attitude Of Participants

Cautious , calculative and conservative . Daring, risk taker and careless.

9. Stability Of Income

An investor purchases security by proper

investigation and analysis with an aim to

receive good and stable return for a longer

period of time.

Speculators are less interested in consistent

returns and are more in earning very large

returns. Hence, they receive a return that is

uncertain and erratic.10. Marketability

Investments can either be marketable or non-

marketable securities

Only marketable securities

11. Types Of Contract

Investor is a creditor of the investment . Speculator is the owner of the speculation.


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nves or pecu a or12. Reasons for purchase

Investment is a scientific analysis of intrinsic

worth .

It is unscientific analysis of scientific worth.

13. Delivery

A genuine investor makes a immediate

settlement after the conclusion of the trade.

A speculator does not make any immediate

settlement of the trade i.e. making payment or

receiving payment.

14.Stress levelTrue investors can sleep soundly at night since

they are for a long term they have a fairly good

idea of their loss and gain before hand and

can forget about short term movements and

ignore the market most of the time.

Speculation is likely to lead to many sleepless

nights and anxious days. Since its result is

uncertain the speculator will have to be always

on the alert to take the necessary quick action

to catch the right moment.

15. Result

Over a long period of time, true

investment tends to produce a positive result

as it produces much higher return than fixed

deposit or inflation.

Speculation is not based on anything

concrete, its result is not at all

predictable. Speculation can occasionally

produce very high gains just as it can producevery high losses.


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Imagine you have $100,000 in cash. It is your sole asset. Youdecide to buy 5,000 shares of General Electric at $20 per

share. You wake up tomorrow and the stock has fallen to $15despite no fundamental shift in the long-term fortunes of thebusiness.

If you are a speculator, you are probably miserable. You thinkyou have lost $25,000 because the portfolio has a market valueof only $75,000.

As an investor, your only concern is whether or not thecompanys long-term earnings, and the $850 in cash you receiveevery 3 months, grows at a rate in excess ofinflation so yourare getting more purchasing power over time. You keep an eyeon the growth-adjusted earnings yield of your business stakesrelative to the yield on the 30-year Treasury to make surenothing gets out of hand, think about the long-term competitiveposition of your holdings (you dont want to own a horse andbuggy manufacturer when the automobile comes on the scene),and make periodic, infrequent adjustments to control your risk.
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It has been found time and again that greedy market

speculators use both legal and illegal means to makequick money during a bull run.

It has been found that Every boom in Indian market hasfinally ended in a scam.

Harshad Mehta and Ketan Parekh triggered such scamsin early 1990s and 2000.

The 2003 -05 bullish streak in the stock market saw theemergence of dishonest speculators forcing shares in

the quota set for retail investors. In the initial public offering of shares as specially does

that are expected to appreciate totally which ended ina demat scam.


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A stock market needs both an investor as well as a

speculator . Speculation should be taken in a legal sense which is

enforceable by law and not in an illegal sense leading toscams and frauds.(e.g. Demat scam , Harshad Mehta

scam). A speculator has to keep a daily watch because of

which he gets scared if there is a down fall in the prices.

Where as , an investor is a person who does not worryabout the current price as he knows that if there is adownfall then the loss will be covered in the future.

PRESENTED BYTANVI SHAH-7901

SAVIO A. CARDOZ -7902


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