Investment decisions are made by
investors
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of property. Types of in ...
and
investment managers. These decision are made based on the finding of analysis tools based on data available about the companies.
Investors commonly perform
investment analysis
In finance, valuation is the process of determining the value of a (potential) investment, asset, or security.
Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuatio ...
by making use of
fundamental analysis
Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, Liability (financial accounting), liabilities, and earnings); health; Competition, competitors and Ma ...
,
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. As a type of active management, it stands in contradiction to ...
and
gut feel.
Investment decisions are often supported by
decision tools. The
portfolio theory
Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of Diversificatio ...
is often applied to help the investor achieve a
satisfactory return compared to the
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...
taken.
Investment decision biases
Bad decisions are often followed by a feeling of
investor's remorse.
See also
*
Behavioral finance
Behavioral economics is the study of the psychological (e.g. cognitive, behavioral, affective, social) factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by traditional economi ...
*
Cognitive bias
A cognitive bias is a systematic pattern of deviation from norm (philosophy), norm or rationality in judgment. Individuals create their own "subjective reality" from their perception of the input. An individual's construction of reality, not the ...
*
Relative strength
*
Ratio analysis
In mathematics, a ratio () shows how many times one number contains another. For example, if there are eight oranges and six lemons in a bowl of fruit, then the ratio of oranges to lemons is eight to six (that is, 8:6, which is equivalent to the ...
References
Investment
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