Investment Management Approaches!
Investments need to be managed accordingly in order to make things clear as well as professionally sound. The better is the management of your investment the best are the result from the investments. There are two different kinds of approaches to investment management discussed below:
Active Investment Management
Active investment management is an approach to investment management that takes an account of the inefficiencies being observed in the market and works with the higher cost concept. This kind of investment management tends to follow a particular style of investment and considers that a particular style may only help generating better returns by beating out the entire market.
Passive Investment Management
Passive investment management on the other side is an opposite concept that takes into account that the markets are efficient and surpassing the returns regularly is not the way out. Moreover, this kind of investment management considers holding investments with a low cost. It is believed in this kind of concept that the low cost investments when held for a longer period of time may generate fruitful results and the investors may enjoy a higher return.
When it comes to going for the approach of active investment management for the stock the following two styles are being considered by the investors:
While investing in the stocks following the top-down approach, the entire market is being considered at first and out of that the industry sectors capable of performing well in current economic conditions are then selected. Once the industry specific selection is being made, considerations shift to particular companies in a selected industry and the best outcome oriented company in a particular industry is then selected for the purpose of investment.
When it comes to making the investment decisions considering the bottom-up approach the market as a whole is being ignored due to the concept prevailing in minds that companies that are successful enough may perform well no matter what the economic conditions be. Companies are being analyzed individually in this context and the one performing well with an insight of its product response, financial statements and market positioning is considered to be the ideal choice.
Keeping aside the active investment management, the passive investment management also is divided into two major concepts:
Efficient Market Theory – In this theory of the passive investment management it is believed that information prevailing in an efficient market is reflected in the market prices of the investments. It is also assumed in this theory that the information in such a market is available to all the investors and may be taken into account instantly.
Indexing – Indexing of funds is also another technique being considered in the case of passive investment management. Indexing is a technique that offers to incur lower costs and expenses and at the same time offers a better insight to all the investment opportunities based on incurring higher costs.
Being a completely professional oriented task the investment management needs expert knowledge and experience possessed by a number of investment companies offering services to the investors.