Value investing as a philosophy of investing started its evolution at the beginning of the twentieth century when Benjamin Graham started teaching this investing strategy in Columbia Business School in 1927. Later, in 1934, one of his students, David Dodd, published Graham’s lectures as Security Analysis that is considered to be a bible for value investors. Today, any investor who is keeping to this strategy may be referred to as Graham-and-Dodd investor. This philosophy has one attractive advantage – one does not need to be a finance genius to become a successful value investor; all he needs is money to invest, patience and time and desire to read some books and do some accounting. It gained popularity because of success of one of its most famous followers, Warren Buffett, who once said about it: ” The investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that the investor Continue reading
Investment Terms
Shareholder Activism – Concept, Definition, Advantages, and Disadvantages
According to economic experts, shareholder activism refers to a process through which an individual with equity in a publicly traded corporation attempts to use his or her shareholder rights to pressure the management team into making changes. Shareholders are partial owners of a corporation. Thus they have rights they can exercise to influence a change of behavior. However, achieving this feat is highly dependent on one’s share classification. Major shareholders have a greater influence over the running of a corporation compared to minority shareholders who only have limited options such as proxy battles, publicity campaigns, litigation, as well as writing formal proposals that are voted for during annual meetings. An activist shareholder focuses on pressuring the management to make financial and non-financial changes that range from the corporate policy, financing structure, disinvestment, adoption of environmentally conscious policies to cost-cutting measures, among others. Several publicly listed companies in the United States Continue reading
Responsible Investment – Concept, Definition, Advantages, and Disadvantages
According to research, many corporations in the contemporary world have purposed to reorient their investment policies in line with the principle of the common good through responsible investment strategies. As a way of addressing the numerous challenges associated with globalization, responsible investment is one of the notable trends that corporations have taken up since the turn of the century. It refers to an investment approach that aims to integrate social, environmental, and governance elements into investment decisions with the sole purpose of improving risk management, as well as generating sustainable and long-term results. The social elements integrated into investment decisions include improving employee relations, diversity, health, safety, working conditions, as well as conflict management. Environmental elements include deforestation, resource depletion, waste management, pollution, and climate change. Governance elements include issues relating to tax strategy, executive pay, political lobbying, corruption, as well as board diversity and structure. The concept of responsible Continue reading
Socially Responsible Mutual Funds – Definition, Advantages, and Disadvantages
A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. The funds are managed by what is referred to as fund managers who invest the fund’s capital to generate income and capital gains for the investors. A socially responsible mutual fund is defined as one that holds securities in firms that observe and adhere to moral, religious, social and environmental beliefs or ethics. The funds also hold securities in firms that demonstrate high standards of corporate citizenship or Corporate Social Responsibility. The concept of corporate citizenship is generally used to refer to the relationship between businesses and their environment. All businesses operate in social, political, economic, and natural environments. The concept, therefore, takes into account how businesses interact with these environments, either positively or Continue reading
Underpricing of Initial Public Offering (IPO) – Meaning and Reasons
Initial Public Offering (IPO) Phases In an Initial Public Offering (IPO), the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market. Any IPO process goes through the following stages of transformation: The pre-IPO transformation phase can be considered to be a restructuring phase where a company starts the groundwork toward becoming a publicly-traded company. Furthermore, companies should re-examine their organizational processes and policies and make necessary changes to enhance the company’s corporate governance and transparency. Most importantly, the company needs to develop an effective growth and business strategy that can persuade potential investors the company is profitable and can become even more profitable. The IPO transaction phase usually takes place right before the shares are sold and involves achieving goals that would enhance the optimal initial Continue reading
Corporate Investment Decisions – Meaning and Stages
In order to succeed in a competitive market, corporations need to pay much attention to their investment decisions to gain benefits and profits. The process of making effective decisions involves several steps, and it needs to be discussed in detail along with a list of options that are available to corporations for their investment. The purpose of this article is to provide an explanation of how the majority of corporations make specific investment decisions to add to their profitability and competitive advantage. The first step in the decision-making process related to investing in the analysis of a current situation with the help of certain tools, such as the cash flow analysis and the analysis of the cost of capital. These tools are important to indicate the current position of a corporation in the market, evaluate its attractiveness to potential investors, and influence its own investing decisions. The second step in Continue reading