Stocks will always be an investor’s investment: the question faced by professionals is whether the market favours small, mid or large cap stocks. A company’s market capitalisation (or market cap, as it is commonly known) is basically the current market price of one share multiplied by the quantity of diluted shares outstanding. Large caps have market capitalisations of at least US$10 billion, while small caps are generally between US$300 million and US$1 billion.
Many investors grow their money by placing it in an investment fund. These funds are already diversified in several areas of the market. There are many different kinds of investment funds, so it’s fairly easy to find one that matches your investment style. If you’re a beginning investor, ensure that the investment funds of your choice are well-managed so as to minimise risk and maximise returns.
Another investor’s investment is angel investing. Angels differ from venture capitalists in that while the latter will invest other people’s money, an angel will invest his or her own. Angels are critical to start-up firms, and they are often willing to fund much riskier projects than venture capitalists. Many of them are the founders of start-ups, so they also give valuable advice. Search engine giant Google was initially funded with angel money.
Trading options is an investor’s investment that was born in 1973. Options trading in its most basic form is paying for the right to purchase or sell stocks or futures at a particular price over an agreed time, or selling that right to somebody else. As an investor, you’re under no obligation to act: you can let the opportunity expire if you so wish. Options are now traded online, and all you need is to become approved as an options trader through your broker.
Some investors like to use initial public offerings as an investor’s investment, though this is rarely the case. An initial public offering occurs when a business gets ready to be listed on the stock market, and they issue a prospectus to stir up investor interest. It’s more common for professional investors to invest in pre-initial public offerings, where a company issues a share offering before it officially lists on the stock exchange.
Big-time money managers are also showing a lot of interest in exchange traded funds. According to a recent report by financial research firm Greenwich Associates, the professionals running conventional mutual funds, endowments and pension plans are bulking up their portfolios with these funds. The surge of interest may be due to the lower cost and ease of trading, which makes it easier to plan for taxes, and also to cash out quickly if the investor needs to.
A successful investor knows that an investment has two sides. They can’t predict the future, so they hope for the best outcome while preparing for the worst. Professionals always plan an exit strategy for any investment. This is why successful investors always make money when the market is good and also when it’s at its worst.
In times of market volatility, it’s wise to observe what institutional investors, such as trusts and foundations, are doing. One of the places where institutional investors are placing their money now is overseas. They are also looking for opportunities in the housing market. Finally, individuals will need to learn how to control emotions, and like the institutions, always invest with a strategy.