Investment:Important?

When talking about Investment, people mostly understand about the concept of "Earning". However, investment means to many things more than earning dollars. The investing can be saving, giving away, improving, increasing, or making better change. The term of investment in types as private and public is clearly begun using financial capital and human capital the same, but different in return. That is why people ask how important of investment. Today, an investment to be described is Private Investment which consist of the follow main concepts to get to know, understand, and keep as knowledge:

1. Capital Market
   
   Any market which most consider on raising fund from financial markets : securities market, stock, bond, and other commercial markets. There are 4 types of capital market:    
   • Primary Market: first issuer is first borrower, selling to investor as first buyer or lender.
   • Secondary Market:
   • Auction Market: market selling products in bidding process: Bid price up from the lowest price to the higher where customers possible to offer. Bid price-down from the set estimated price down to the lowest one where customer possible to offer (normally for public investment, project, etc.)
     
     
                   
     
     
   • Negotiated Market: a market between seller and buyer negotiate the possible price with / without middle man. If with middle man (he or she will receive commission, percentage, or some parts of ownership, i.e. shares).
   • Capital market is important in financial operation, expanding business, business and government raising fund from selling stock and bond, and improving people welfare.
2. Reasonable Expectation
   
   • Investor expect high return, where high risk is coming along.
   • Investors should consider on: setting possible expectation, setting possible goals, study risk policy, financial planning (FP), and set retirement planning.
     
                      
3. Knowledge and Experiences
   • How important of knowledge, experiences, and capital toward investment?
   • Knowledge: skills, set goal, FP, risk and reward, asset allocation, market diversification, ...
   • Experiences: history of work, testing, decision making, and also professions helps
   • Capital: financial and human capital
4. Preference and Risk Tolerance
   • Prefer high return = high tolerance (facing to deal with problem)
   • Prefer low return = low tolerance (earn little by little or sometime drop it)
   • Prefer medium return = be flexible to accept / face risk (deal with it step by step, or if too much drop the return for surviving first).
     
                 
5. Probability Distribution
   
   • Probability distribution allowing to sum up all possible event (P) may occur in one exact case
   • Probability distribution (PD) = P(1) + P(2) + ... + P(n)
   • PD = 100%
   • PD help to define Expected Value (we set possible expected returns from one exact case / period)
   • Expected Value (EV) = R(1).P(1) + R(2).P(2) + ... + R(n).P(n)
   • Detail, PD and EV click here ! with some example exercises.
6. Bond Price and Interest Rate
   • Bond Price has components: yield to maturity (YTM), interest return, number of period investing, Par value
   • There are many components associated with PB such as discount rate, inflation rate, market risk rate, etc.
   • See formula of PB and exercises, click here !
     

Download Full lessons here - Chapter Three (Important Investment Concept) !