A GLOBAL METHODOLOGY FOR CAPITAL INVESTMENT STRATEGY

Placement strategy according to the life cycles of the patrimony

The problem of choosing the optimal solution for placing savings must be preceded by an
analysis of each person's objectives and expectations.
The expert will have to find together with the investor the answer to at least the following
questions:
- What is the objective pursued by the placement action? We really want to protect the savings
made against risks and / or to obtain the best possible return in their recovery.
- What is the amount available for investment? The size of the funds that can be placed will
influence the final decision regarding the selection of some or others of the investment options and
will directly influence the degree of diversification of the patrimony and implicitly its level of risk.
- What is the duration of the investment? (Will the amounts be placed in the short or long term?)
- What is the investor's tolerance for risk? (is he willing to accept a higher risk in the hope of
making bigger gains or does he prefer a small but safe gain?)
Before opting for one investment or another, both the wealth management advisor and those
investors who choose to manage their assets individually, it is advisable to take into account some
basic rules and principles that must be observed when making capital investments.
1) risk assessment
The basic rule to keep in mind is that the return on investment is directly proportional to the
degree of risk. In other words, the higher the promised or estimated gain, the higher the risk of
losing money.
Zero risk investments bring the lowest gains, but also the safest. These can be: investments in
the CEC, bank deposits within the amount guaranteed by the state, real estate investments made in
solid and well-located buildings, investments in bonds or government securities.
Low-risk investments are those with medium stability, such as, as a rule, bank deposits (above
the state-guaranteed amount) and foreign currency investments.
Medium-risk investments are usually considered to be gold investments, while high-risk
investments are those in securities other than government bonds and investment funds. With the
mention that in the case of the latter, depending on the investments made by the companies that
manage the funds, they can be high, medium or low risk within the general high risk level.
2) establishing the duration of investments
It is very important to set clearly when exactly we want to reap the benefits of the investments
made, because this criterion complements that of the degree of risk, in the investment option we
make. For example, for short periods can be chosen bank deposits, for medium periods, investment
funds, and for long periods, real estate investments.
3) diversification of investments
Regardless of the degree of risk of the chosen investments, the total risk decreases proportionally
with the degree of investment diversification. The famous saying "We must not put all the eggs in
one basket" expresses poetically, but very clearly, this requirement.
Thus, it is not indicated to achieve a single investment, but a dispersion of resources between
the different investment options and implicitly a dispersion of risks, by setting up a portfolio.
Diversification must be done both between different investment categories (real estate, financial
- banking, etc.) and within the same investment. Thus, it is not advisable to deposit all the money
in the same bank, if they exceed the amount guaranteed by the state, it is good to be divided
between several banks, as much as possible within the maximum guaranteed ceiling. Also, it is not
advisable to invest in a single mutual fund, but the money intended for this form of collective
saving to be placed in at least 2-3 investment funds, characterized by different degrees of risk,
given the structure of investments made.
In the case of equities, the risk of a portfolio depends in the first instance on the number of
component securities. Of course, the number of securities included in a portfolio is not the only
measure of its diversification. A portfolio whose value is equally divided between 10 securities
will be a priori better diversified than a portfolio where 90% of the amount is invested in a value,
and the rest will be distributed to the other 9 securities. On the other hand, some securities have a
lower specific risk than others. It is clear that a portfolio of equities representing recognized and
important companies will be less risky than a portfolio of similar size grouping small lower -
ranking companies. Also, a diversified portfolio is less risky than one in which the shares belong
to the same sector.
4) maintaining the negotiability and mobility of the investment
Investments must not only be secure, but also easily negotiable. Even if a substantial income is
expected at the time of purchase, it is more prudent to take into account the fact that the situation
of an important acquisition may arise which would make all the available funds necessary.
In general, collections, jewelry, real estate are not easily resold. It takes time to be sold and in
case of a quick transaction you have to make concessions on the price.
In terms of placement mobility, this requires adapting to an evolving situation. The placement
situation should be re-examined from time to time. Maybe a mistake was made initially and a
correction is needed. This happens frequently and only needs to be acknowledged. Instead of
waiting for miracles, which usually do not happen again, it is better to repair the mistake as long
as it is not too late.
 One solution would be one that assumes that taking advantage of the excessive decrease of some
values to act in the countercurrent of a cyclical phenomenon, determined by conjunctural
fluctuations or by a simple fashion. Countercurrent investments require a lot of patience and the
belief that there will be a period when the dominant trend will be the opposite of the time of
purchase in order to make a profit. However, the idea that any falling course will inevitably rise
again must be avoided. When making a purchase according to this principle, the situation must be
critically examined and relevant assessments of the chances of recovery must be made. A company
whose shares are declining may well be bankrupt.
5) staging the placement action
Achieving absolute security through investments is impossible. Unwanted or unforeseen events
occur only with a certain degree of probability. For the investor, this means acting in stages, always
taking into account the possibility that events will take another turn.
If a considerable amount to be placed is available, it is preferable to schedule purchases in time,
in order to prevent the undesirable effects of significant and cyclical price fluctuations.
When selling, it is advisable to act in the same way, in stages, in order to prevent prices from
falling in the event of a massive sale.
6) permanent information, from multiple sources
You don't have to act on rumors. If a mutual fund promises very large increases in the value of
equity securities, find out about the structure of its investments. Invest in shares only after a prior
analysis of their evolution and prospects, as well as the situation of the issuing company.
Don't necessarily put money in deposits with banks that offer the highest interest rates on the
market, differentiate between commercial banks and credit unions, etc.
Watch what happens with the investments made. There is information in the newspapers and on
the internet regarding the share prices, the present value of the investment units in funds, etc.
Regularly calculate the gain (or loss) on that investment and compare it to the interest rate, inflation
rate, exchange rate developments, to see if that investment is still justified.
And last but not least, prove your flexibility and ability to adapt to market conditions. The best
strategy is to set in advance maximum limits of acceptable losses (eg 30%), limits after which the
structure of the portfolio will automatically be changed.