An introduction to the business investment philosophy
We all dream of making huge investments with our own funds or by pushing for bank lines of credit in order to fund an innovative business plan. Generally, we intend to invest a lot of time and resources during this period; Despite making our best efforts trying to make one of those “common” investment work, most of us fail. However, we keep trying in the hope of becoming a legend. During the hard times you read feedback written by successful investors, making us long to find the same keys to turn things around quickly based on their experiences and, eventually, hope to also become millionaires.
In our research, however, we find that entrepreneurs are drowning themselves with contradictions and anomalies.
The business investment philosophies are a coherent way of thinking about markets; how they work and the types of errors that consistently underlie the behaviour of entrepreneurs.
Most entrepreneurs do not imply a investment philosophy and the same could be held accountable for many professional investment advisers. Entrepreneurs constantly overestimate the value of growth and underestimate the value of their assets. An analysis of efficiency or the actual lack of market are equally required to be studied before we could consider whether the investment philosophy would translate to a success.
Many investment strategies are designed to exploit errors committed by entrepreneurs and the errors that occur evaluating the equity of their companies. Such errors are driven largely by basic assumptions of human behaviour.
An active strategy seeks to enable the entrepreneur to invest in a company and try to change the way the company is run to make it more profitable and more valuable. Venture Capital funds can be classified as active investors because they not only take positions in promising companies, but they also provide important intangibles policies for operation and development of their businesses.
Success in corporate investors should be based on:
Risk aversion: some strategies are inherently more risky than others, but the likely returns are also higher.
Size of your equity portfolio: some strategies require large equity portfolios for success, however, others work on a smaller scale. Often this depends on the economic capacity and market share in the sector to which the investor belongs to.
Time horizons: some business investment strategies are based on long-term horizons, while other investors require much shorter horizons. If you are investing own funds, your time horizon is determined by your personal capacities and liquidity requirements to repay credit lines.
Tax situation: Since a portion of the money generated by the company ends up in the hands of tax collectors, this results in creating a strong influence on the investment strategies and even causes the investment philosophy to adopt.
The right investment philosophy will reflect the investing entrepreneur’s strengths and weaknesses. There is no investment philosophy labelled as the “best” for all investors in the world.
As an entrepreneur, to succeed you must consider not only the markets, but you should also consider your strengths and weaknesses in devising business investment philosophy that best suits your Terms. Investors without a overall goal tend to wander from strategy to strategy, creating transaction costs and incurring losses as a result.
Investors with clearly defined strategies tend to be more consistent and disciplined about decision making in business investments.