The activities of venture investors in the stock market are rather limited. They use the tools of the stock market at the initial stage, at the entrance to the investment project and at the end - at the exit from it. The main task facing the venture investor is to choose the investment object. Investments can occur at various stages of the implementation of an innovative project:
• At the initial stage - to conduct additional research and create pilot samples;
• to a newly formed company - to conduct research and start sales;
• into a working company - to expand production, marketing and marketing research;
• in a company that has finished products and is at the initial stage of its implementation - for additional financing of sales.
After a thorough study of the company and its business, the venture investor decides on the financing of the project. As a rule, the investor provides direct lending and simultaneously participates in the share capital through the acquisition of shares. Having completed the entry into the innovative project, the venture investor leaves the stock market.
For venture investments, non-specific risks of innovation activity are great, which are not always amenable to effective minimization. Therefore, venture investment in the innovation field is accompanied by strict control and is conservative in the field of business management. Venture investor, as a rule, monitors the effective use of financial resources. Since 70 to 95% of innovation projects fail, one of the ways to minimize losses in the process of venture investment is diversification of financial investments in fundamentally different investment projects with the hope that one of them will pay off. This is a way to reduce losses for the venture investment program in general, but not every specific innovation project in particular.
The separation of joint risks between a venture investor and the company's management, a long period of relationships and the open declaration by both parties of their goals at the initial stage of joint work are the main differences between venture financing from strategic investment or from bank lending.
The implementation of the venture project takes 5-7 years. With its successful implementation, the investor sells its shares for a price many times higher than the initial costs. Examples of successful venture projects include Fairchild Semiconductors, the forerunner of all Silicon Valley semiconductor companies, Intel, Apple Computer, and Cisco Systems, one of the world's leading telecommunications equipment manufacturers. In 1987, Don Valentine bought a stake of $ 2.5 million, and a year later the value of this stake was $ 3 billion.
Speculators in the securities market
Define the place of speculators in the course of trading on the securities market. The main participants of exchange trades are large mutual investment funds. They have a well-diversified portfolio of securities, a large team of qualified analysts and modern software. The activity of the funds pays off due to the large volume of transactions, when even insignificant fluctuations in the rates of securities bring substantial income. Next come investment companies that have less financial capacity to ensure their professional activities. Traders in such companies work for interest on profits, which makes them take risks when making transactions. The weakest players in the exchange trades are small speculators who do not have modern software, access to information in real time, and often do not have sufficient experience in the stock market. Such speculators can simultaneously track the movement of the rate of more than two or three securities, so their investment portfolio is not diversified.
Speculators profit from operations with securities due to short-term fluctuations in rates. Consider their actions in the course of exchange trades. When the value of securities on the market begins to decrease, speculators sell (their own or borrowed) securities, buying them back at a lower price when the market reaches a price minimum. If the market begins to dominate the "bullish" quotes, tendencies, speculators buy securities on their own or borrowed funds. When the market reaches a price high, speculators sell securities and make a profit.
Thus, the earlier the speculator realizes that the market began to give signals about the trend change, the greater profit it will be able to get. When the trend becomes sufficiently confirmed, large speculators enter the game, which prefer to minimize the risk of making false decisions by reducing the profitability of operations. However, when they make transactions with large packages of securities, they get a big profit. When the trend becomes obvious, all participants of the market begin to follow it, on the one hand, providing liquidity of the market, and on the other - forming conditions for changing the trend to the opposite. The most experienced speculators already at this stage begin to prepare for a trend change, playing against the market.
The exchange game has great potential, but also great risks, in which you can either win a lot or lose everything. Not everyone can cope with such a psychological burden. Therefore, in addition to understanding the processes taking place on the market, the speculator must possess extraordinary personal qualities: coolness, the ability to make decisions in a stressful situation, and so on. There are very few people with such abilities, and they are referred to the stock market professionals ("bulls" and "bears"), and the rest are called "sheep".
Sheep form a crowd of participants in exchange trades that have a specific psychology of behavior. Distinctive features of such a crowd are a false sense of force majeure, imitation of each other, susceptibility to suggestion and willingness to blindly follow the leader. For the crowd of stockists, one-sided and inadequate perception of the market condition is characteristic. The price of such behavior is the momentary agreement on the rate of securities on the market, reached between its participants, both adhering to a certain plan of action, and those who by virtue of their professional unpreparedness or psychological weakness join the majority.
Birzheviki make a decision on buying/selling securities, analyzing the indications of technical indicators. Their behavior in the stock market can be different, starting from a completely formalized approach, oriented to a clear adherence to a certain behavioral algorithm, and ending completely with subjective behavior.
Having good software allows a bidder to not take responsibility for making a decision to enter into a deal. All that is required of it is to monitor the market, determine what actions are recommended by the program, and implement these recommendations. With a subjective approach, deals are made under the pressure of the current moment, often under the influence of emotions and stress.
Professional participants of exchange trade control their emotions through self-discipline, which means compliance with certain rules. The main of these rules are the rules for entering and leaving the market both for losing and winning positions, rules for starting a trade and for completing it, and so on. At the same time, professionals work on certain segments of the stock markets and with certain financial instruments, selecting and adjusting their system of indicators for each case.
Currently, various computer programs have been developed that allow analyzing the behavior of technical indicators of the stock market. However, one should not get carried away with the number of analyzed parameters, since different indicators can give inconsistent signals with a significant time delay. It is more correct to use a few indicators that are adequate to the problem being tackled, and to detect the tendency of the market development at an early stage of its occurrence. In addition, it should be borne in mind that the same software is used by many exchange speculators. This means that the decisions they make will be similar; they will act, albeit optimally, but predictably.
In the special literature the basic rules of behavior of participants of exchange trade and some recommendations about actions which should be undertaken at reception of signals of technical indicators are stated.
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