What is an investment strategy?
The purpose of the investment strategy is to develop an action plan through which investment activities will be optimized as much as possible. Under the strategy as a whole understand the totality of managerial decisions in specific economic conditions. An investment strategy can be developed both for the whole state and for one person, only the level of training and the scale of the task will differ.
The simplest example of understanding the essence of the strategy is the investment strategy of the enterprise. Any investment activity is carried out in order to profit or gain in intangible terms.
To make a profit, it is important to evaluate key aspects of economic activity, such as:
- Search for funding sources
- Ensuring planned growth rates
- Maintaining financial stability, as well as the growth of key financial indicators
- Minimization of attendant investment risks
- Market research/market research
- Repair, modernization, and development of production
- Formation of the necessary volume of investment resources
- Creating an optimal investment structure
- Creation of a business plan, analysis of investment tools, calculation of profitability levels
- Creating an investment portfolio, planning options for covering damage in case of ineffective implementation of the plan
- Assessment of the investment tools used, selection of the most effective, rejection of loss-making assets and projects
- Business development thanks to investment income
- Increase in revenue and net profit / ensuring maximum levels of profitability.
Since the investment strategy is a long-term plan for the company’s profitable activities, it is necessary to constantly develop and manage the strategy, regularly solving current problems, re-evaluating its stages.
Participants in the investment process should not forget that when forming a strategy, it is categorically not recommended to separate it from previously accepted areas of development of current activities unless circumstances so require. A logical connection is necessary between investment and financial, social, possibly political and other types of strategies that are followed in the company. To achieve maximum investment efficiency, synthesis with parallel paths of activity is required. Together, this gives the greatest effect.
Principles of investment strategies
The principles of investment strategies are called a set of basic concepts from which the development of activities in the future is based:
- Goals should satisfy the interests of all participants in the investment project
- Goals clearly articulated / exclude discrepancies / quantitative / measurable
- The tasks set are real (the subject must have the full amount of resources in order to achieve his plan)
- Investment strategy complements and does not contradict/does not interfere with the achievement of other business objectives
- Flexibility and universality of the strategy (when changing factors affecting the activity, management always has the opportunity to adjust the strategy without changing the final result)
- Contribute to achieving priorities
- The basis for calculating the number of investment resources required for the full implementation of the project
- Establish directions for the development of investment activity
- Striving for an innovative nature of the activity.
The basic principles of an investment strategy in a structured form
- Compliance principle (consistency of investment activity with the opinion of all participants, and not contradiction with other adopted development strategies)
- The principle of adaptability and flexibility (in case of changes in external and internal factors, in the event of force majeure circumstances, the top management of the company should have the tools to change and adjust the approved investment strategy without abandoning the tasks. Such force majeure can be dramatic changes in the legislation of the country, in the market environment, economic crisis, etc.)
- The principle of development and openness (it implies a constant search for ways to improve current investment activities, as well as the search for new investment tools suitable to the strategy)
- Safety principle (continuous work to reduce the level of investment risks by selecting the optimal formation of the investment portfolio)
- Principle of competence (the field of investment is a very high-tech and specific science and in order not to spoil the results from its activities, the investment process is entrusted exclusively to professionals).
Types of Investment Strategies
The types of investment strategies may differ from each other depending on what type of investments the investor is engaged in, and most importantly, what goals he pursues. The main strategies used by investors conducting investment activities in the field of finance:
- Aggressive strategy – always aimed at obtaining the maximum level of profit at minimum intervals
- A conservative strategy does not set itself the goal of quick enrichment, but rather, its main task will be to maintain the volume of assets at the current level (security)
- A moderate strategy– ceteris paribus, is aimed at both preserving and moderate growth of investor capital.
You need to understand that the reason for choosing an investor in favor of financial investments is high levels of return. That is their main task.
In a situation where the management team gives priority to technical and technological development, increasing production areas, increasing the quantity and quality of products, it is advisable to use direct investment. In this case, the investment strategy will be reduced to the following types:
- Enhanced growth (used by companies that apply innovations in production and management in the development of their own business)
- Inertial growth (suitable when closing a project, bankruptcy, liquidation of an enterprise)
- Limited growth (use enterprises with a leading and stable position in the market, or companies limited in resources)
- Combined strategy (suitable for very large organizations with many structural divisions and departments for each of which has developed its own investment strategy).
Development stages depend on the predictability of external and internal factors affecting investment activity in the reporting period, and look as follows:
- Formulation of company policy and its priority goals and objectives
- Assessment and analysis of the external environment, market structure, competitors, etc.
- Investment policy development
- Development of mechanisms for the implementation of investment activities (a whole range of measures from managerial to finding all the necessary resources)
- Assessment of the results of investment decisions made (the expected results of future investments are laid so that in the future it is possible to assess the work done).
Investment activities are carried out both by individuals and legal entities, as well as individual countries and their regions. Of course, the tasks that each of them solves are very different, including the results. The larger the investor, the wider and wider the pool of his investment ideas.
Private investors are set as the goal of obtaining financial independence or a satisfactory financial condition, while large investors, in addition to generating income, solve social, environmental, political and other problems.
An example of a large investor is a separate region of the state.
The mechanism for developing the investment strategy of the region
- Formulation of strategic development goals
- Inventory of available investment resources in the region
- Assessment of the existing investment climate
- Identification of opportunities to attract state support
- Determination of directions and ways of economic development in the region
- Organization of the procedure for taking measures that can improve the investment climate and attractiveness
- Making a list of priority investment projects
- Assessment of socio-economic consequences based on the results of planned investment activities
- The development of all necessary mechanisms and the adoption of a set of measures to implement the investment strategy of the region, the definition of control points and persons responsible for management.
The investment strategy of the region is the tools, methods, and methods that allow the leadership of the territorial entity to attract investment funds of domestic and foreign investors and use them to improve the quality of life and develop priority areas of activity.