Currently, issues related to investment activities are becoming extremely relevant. With the development of market system, investment strategy began to represent one of the most important types of the enterprise strategy. This factor provides all the basic directions of the development of its investment activities and investment relations. All these issues come about through the formation of long-term investment objectives, selection of the most effective ways of achieving them, adequate adjustment directions of formation and use of investment resources at changing environmental conditions. The investment strategy is a set of methods and tools for portfolio management. The purpose of its use is increasing of investor capital.
“The investment strategy is a system of long-term goals of the company defined with common objectives of its development and investment ideology, as well as the relationship with the choice of the most effective ways of achieving them” (Damodaran 378).
This kind of strategy is an effective tool for long-term investment management of a company. It is a concept of corporation’s development. As a general plan for the investment of the company, it defines priority areas of investment activities, the nature of investment resources of the enterprise, forms of investment and boundaries of the possible investment activity of enterprises. It also determines the system of formalized criteria by which the company models, implements and evaluates its investment activities and a sequence of stages of development of long-term investment objectives of the enterprise (Shipman 94-95).
The process of developing an investment strategy is an essential part of the general strategic choice of the corporation. It includes the following:
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- Setting of objectives of the investment strategy.
- Optimization of the structure of the formed investment resources and their distribution.
- Formulation of investment policy on the most important aspects of the investment activity.
- Maintenance of relationships with the external investment environment (Russell 53-54).
The need to develop an investment strategy of the enterprise is determined by changes in the external and internal environment. It is possible to manage investments effectively only in the presence of the investment strategy that is adapted to possible changes in factors of the external investment environment. Otherwise, investment decisions of individual business units may contradict each other. It would reduce the effectiveness of the investment activity. Change of factors of the internal environment of the enterprise may be associated with dramatic changes of purposes of its operating activity or the upcoming changes in the stages of the life cycle. New business opportunities change operating objectives of the company. In this case, the developed investment strategy provides a predictable nature of the increase in the investment activity of the enterprise and diversifies its investment activities (McMillan 318-321).
There are three types of investment strategy: conservative, moderate and aggressive. Conservative investment strategies involve the lowest yields (up to 20% per year), but at the same time and the lowest risk of loss of capital. The most typical example of conservative financial instruments is bank deposits. When the predicted profitableness makes 20-50% per year, these are moderate investment strategies. Investment in shares of reliable companies and high-yield investment funds can serve as an example of moderate financial instruments. Aggressive investment strategies involve annual yield of over 50%. However, the risk of capital loss is extremely high. These include investments in high-growth shares of newly created enterprises and business investment (Stanyer 115-117).
Inside the investment strategy, the value of the main criterion assessments while choosing real investment projects and financial investment instruments is formed. The developed investment strategy is one of the basic assumptions of strategic changes in general organizational structure of the enterprise management and organizational culture.
Damodaran, Aswath. Investment Philosophies: Successful Strategies and the Investors Who Made them Work. Hoboken: John Wiley & Sons, 2003. Print.
McMillan, Lawrence G. Options as a Strategic Investment. Upper Saddle River: Prentice Hall Press, 2012. Print.
Russell, Chris. Trustee Investment Strategy for Endowments and Foundations. Hoboken: John Wiley & Sons, 2006. Print.
Shipman, Mark. Big Money, Little Effort: A Winning Strategy for Profitable Long-Term Investment. Philadelphia: Kogan Page Publishers, 2008. Print.
Stanyer, Peter. The Economist Guide to Investment Strategy: How to Understand Markets, Risks, Rewards and Behavior. London: Profile Books, 2014. Print.