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Source: Investment Analysis (wallstreetmojo.com)
What is the Investment Analysis?
Investment Analysis is the method adopted by analysts to evaluate that the investment opportunities, profitability and its its associated risks in their portfolio. It helps them to determine whether the investment is worth or not.
Types of Investment Analysis
#1 – Bottom-Up
The bottom-up analysis focuses on an individual company in which the investment is to be made. This helps the small investors to focus and plan their investment in a particular selected company rather than studying the entire market for investment purposes. It is a conservative approach but on the other hand, helps the investors in taking the right decision.
#2 – Top-Down
Top-Down analysis, investors are required to study the entire market. Generally, big investors are interested in this type of strategy. The focus is entirely on the big markets ad, not n the small companies. It is a comparatively broader approach than any other investment analysis.
#3 – Fundamental
It is a traditional method in which analysis is done by finding out the Fair market value of the investment, and by that, the investor decides whether to buy the stock of the company of not. It is yet another excellent and effective method of analysing investments.
#4 – Technical
This method is used to determine and identify the trading opportunities by observing the statistics of the stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more. The experts give guidance about when and where to invest in increasing the returns.
Examples
Investment Analysis can be different for different people here. We take the example of two individuals and their investment goals.
A 23 years old woman who works in an MNC wants to understand her investment plans she will hire an expert for the same the expert may advise her to invest in Mutual funds or to buy individual stocks as she is in a position to take a little risk. The investment planner has to understand that she is now earning a good salary per month so she will be able to contribute some money as an investment. Therefore, she can act as an aggressive investor. The idea of making this investment analysis is to make her understand the future benefits of savings and also to invest wisely.
On the contrary, if an expert is asked to make an investment plan for a 70 years old man who is a retired bank manager, then the strategy will be absolutely different. The older man is basically concerned about the stability in his finances. He is more likely to save and invest in riskless securities.
He can’t act as an aggressive investor; he will be more conservative in his approach. Now the investment analysis should be such that the old is required to invest in fixed deposits, government bonds, also in some retirement benefits schemes which may happen to get matured by that time. The financial advisor should defiantly work for the betterment of the client as per their choices and convenience.
Therefore, it is always advisable to make wise investment decisions at the peak of your career so that we can get more benefits from the same.
Advantages
- The investment analysis is a tool that helps investors to make wise decisions about their hard-earned money.
- This makes investors more alert about market trends and investment plans. One can get a considerable amount of benefits by deriving a proper plan from an expert or by himself.
- While doing analysis, the experts can easily research the securities and can also evaluate the sustainability and the growth of it in the near future. Through this study, the investors can have a clear idea of the securities he wishes to invest in.
- Not only individuals but investment analysis can help big companies arrange their portfolio management.
Disadvantages
- It requires investment plans, and they are somewhat complicated; also, it needs a whole lot of financial knowledge. Some small investors or medium investors cannot do justice with the same, and hence they may end up making the wrong decisions and also may incur huge losses in place of gains.
- It requires knowledge, and sometimes risk-aware investors appoint experts for the same. The experts give them proper guidance but the expert charges fees for the same. This can become an additional cost for many small and medium investors.
- When an individual is trying to have financial planning, he should determine the market risk, which is not predictable. No one in this world, not even the finance mister can predict the exact amount of risk that can be involved in any transaction. Therefore, there are unavoidable risk factors associated with investment analysis.
- Government policy can be a hamper in this investment analysis if this factor is not taken into account.
Recommended Articles
This has been a guide to What is Investment Analysis and its Definition. Here we discuss investment analysis types along with examples, advantages, and disadvantages. You can learn more about investments from the following articles –
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