INVESTMENTS: When we think of any commercial property investments, it should be either on land, on properties or any kind of financial assets. When land or may be other assets can be used in different ways, the individual has a choice among various income streams and the act of making such preference is usually called investment.
The investor is one who makes the decision. An investor may be an individual, a firm or a company. The most important question that consequently arises, is, why should any one invest And the answer is even easier, that to get a favorable return from it or to make a lump sum profit, which would do well to him and suit his requirement. The decision taken of an investment is primarily affected by the interest rate, when investing in capital market. In a constant interest rate, an individual first chooses the investment plan which will maximize his wealth and then prefers the current and future consumption by trading claims in the market. Thus, investment differs from pure trade.
The most important decision that a firm has to take is when to invest in new capital. Unlimited dollars may be commercial property investments in a factory or machines that last and affects profit level for many years. It should keep in mind that, the future cash flow that the investment will generate, is often uncertain and once the factory has been built, the firm usually can not disassemble and resale it to recoup its investment. Then how should a firm decide whether a particular capital investment is worthwhile. There is a very easy method to solve this question. The NET PRESENT VALUE CRITERIAN method, which calculates the present value of future cash flows that is expected to receive from investment. At a given discount rate (the rate which compares the value of currency received in future to the value currency received to day), if NPV is positive, the investment should be undertaken and an intelligent firm always calculates the NPV prior to investing. As we know, firms value the future cash flows and thereby decide to invest in long term capital. The individual consumers face the same decision when they purchase any durable or luxury goods such as car, house etc.
There are some intelligent investors who show there interest of investment in capital market. There
are mainly three types of commercial property investments that we generally come across. (1) Risk Averse persons, who prefer to have the expected value of his wealth rather than facing a gamble. For these people, purchasing insurance is highly demandable as this involves no risks at all and against a few years premium they will get a return of assured sum of money as well as protection on death, liquidity in terms of loan, tax relief etc. (2) Risk a lover person, who prefers a random distribution of wealth to its expected value. Such kinds of people are generally engrossed to invest on equity shares. For such kind of characters; the expected utility of wealth is higher than their utility of the expected value of wealth. (3) Risk neutral. For them, the expected utility of wealth is same to the utility of its expected value. In this case the customer does not care about the risky ness of his capital at all but of its expected value. The whole commentary gives a clear idea about how a firm or a company should invest and the type of investors but it is not the rationale of it.Its main objective is to identify the intelligent investors from the market. By serving this purpose, we find out that, those investors are more intelligent who diversifies their wealth while investing on any assets. Any kind of investment involves some uncertainty but diversification is a procedure, which could mitigate the over all risks while keeping the expected pay offs the same. The diversification of portfolio investment is applicable to only those assets which are negatively correlated. Investments on such pair of assets are generally meaningful as they can reduce risk dramatically. It can be easily understood if we go through the following example: An investment in a sunglass company during summer season and that of a raincoat company during rainy season gives a high rate of return but if the investment is such that, the investment in sunglass company is made during rainy season and that of the raincoat company during summer, the pay offs will definitely be reverse. It is not very likely. In such circumstances, if the investor company spends its entire money to purchase one kind of shares, there will be a 50% probability of getting its positive return but if it is an intelligent investor, it will diversify its investment for purchasing the shares of both companies. Stock market is an interesting field that allows for risk spreading.
This is a ground where the owner of a company as well as individual investors has an opportunity to convert their rivulet of return overtime to a lump sum. But it is to say that, in stock markets, there are risks in aggregate. It is quite evident that, the market which is doing well during this year and possibly will poorly perform in the next year. Therefore investing in stock market is not an easy assignment. This is a suitable pathway only for those commercial property investments investors who are willing to bear risk. According to many, if the investor in an intelligent one he should always be at the forefront to acquire a challenge of taking risks, because if we want to obtain more, we should have to hurl ourselves into uncertainty, or else there is no alternative.
The investor is one who makes the decision. An investor may be an individual, a firm or a company. The most important question that consequently arises, is, why should any one invest And the answer is even easier, that to get a favorable return from it or to make a lump sum profit, which would do well to him and suit his requirement. The decision taken of an investment is primarily affected by the interest rate, when investing in capital market. In a constant interest rate, an individual first chooses the investment plan which will maximize his wealth and then prefers the current and future consumption by trading claims in the market. Thus, investment differs from pure trade.
The most important decision that a firm has to take is when to invest in new capital. Unlimited dollars may be commercial property investments in a factory or machines that last and affects profit level for many years. It should keep in mind that, the future cash flow that the investment will generate, is often uncertain and once the factory has been built, the firm usually can not disassemble and resale it to recoup its investment. Then how should a firm decide whether a particular capital investment is worthwhile. There is a very easy method to solve this question. The NET PRESENT VALUE CRITERIAN method, which calculates the present value of future cash flows that is expected to receive from investment. At a given discount rate (the rate which compares the value of currency received in future to the value currency received to day), if NPV is positive, the investment should be undertaken and an intelligent firm always calculates the NPV prior to investing. As we know, firms value the future cash flows and thereby decide to invest in long term capital. The individual consumers face the same decision when they purchase any durable or luxury goods such as car, house etc.
There are some intelligent investors who show there interest of investment in capital market. There
are mainly three types of commercial property investments that we generally come across. (1) Risk Averse persons, who prefer to have the expected value of his wealth rather than facing a gamble. For these people, purchasing insurance is highly demandable as this involves no risks at all and against a few years premium they will get a return of assured sum of money as well as protection on death, liquidity in terms of loan, tax relief etc. (2) Risk a lover person, who prefers a random distribution of wealth to its expected value. Such kinds of people are generally engrossed to invest on equity shares. For such kind of characters; the expected utility of wealth is higher than their utility of the expected value of wealth. (3) Risk neutral. For them, the expected utility of wealth is same to the utility of its expected value. In this case the customer does not care about the risky ness of his capital at all but of its expected value. The whole commentary gives a clear idea about how a firm or a company should invest and the type of investors but it is not the rationale of it.Its main objective is to identify the intelligent investors from the market. By serving this purpose, we find out that, those investors are more intelligent who diversifies their wealth while investing on any assets. Any kind of investment involves some uncertainty but diversification is a procedure, which could mitigate the over all risks while keeping the expected pay offs the same. The diversification of portfolio investment is applicable to only those assets which are negatively correlated. Investments on such pair of assets are generally meaningful as they can reduce risk dramatically. It can be easily understood if we go through the following example: An investment in a sunglass company during summer season and that of a raincoat company during rainy season gives a high rate of return but if the investment is such that, the investment in sunglass company is made during rainy season and that of the raincoat company during summer, the pay offs will definitely be reverse. It is not very likely. In such circumstances, if the investor company spends its entire money to purchase one kind of shares, there will be a 50% probability of getting its positive return but if it is an intelligent investor, it will diversify its investment for purchasing the shares of both companies. Stock market is an interesting field that allows for risk spreading.
This is a ground where the owner of a company as well as individual investors has an opportunity to convert their rivulet of return overtime to a lump sum. But it is to say that, in stock markets, there are risks in aggregate. It is quite evident that, the market which is doing well during this year and possibly will poorly perform in the next year. Therefore investing in stock market is not an easy assignment. This is a suitable pathway only for those commercial property investments investors who are willing to bear risk. According to many, if the investor in an intelligent one he should always be at the forefront to acquire a challenge of taking risks, because if we want to obtain more, we should have to hurl ourselves into uncertainty, or else there is no alternative.
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