When talking about investing, people often claim that time-tested approaches are still relevant: as long as you follow these principles, you have a good chance to succeed. But today investors face many unique challenges, and the most serious and global of them is the speed and amount of incoming information.
Sergey Kartashov (Sergejs Kartasovs), CEO of Cypriot asset management company Generation Partners, told us what to do in such a situation.
In the past, it was difficult to get reliable information about publicly traded companies. The Wall Street Journal and a limited number of financial media attempted to collect and distribute business news. But the speed of reaching the general public for the newest information depended on the speed of printing.
Now, even little-known companies can generate a constant information stream. That is why, with so much data available at any given time, it is difficult to determine what really matters.
Sergey Kartashov notes that inaccurate information still gets to the market, even though it takes much shorter to correct or disclose fake news nowadays. Inaccuracies can be random mistakes, malicious rumors, or even financial fraud by corporations. Moreover, financial markets are so dependent on the constant flow of information that now we face another problem: the lack of data is worse than its inaccuracy.
The difficulty of finding a suitable resource is associated with the problem of too much information available. How can an investor find quality resources?
With Big Data, investors can filter information and create a select pool of trustworthy sources that match their investment tastes. Analysts working with large databases assess global financial trends and the general market situation and provide the investor with complete and objective information.
Attracting investment is impossible without a thorough check of the applicant companies. Sergey Kartashov explains that verification, in this regard, means creating an investment basket based on an audit, which includes an assessment of the following aspects:
- Advantages and disadvantages of corporate management of the company;
- Experience and skills of personnel;
- Information security systems that directly affect profit and reputation of the company;
- Financial reports.
When creating an investment basket, the investor should take into account profitability, liquidity, time horizons, and risks. The investor selects particular companies and thinks over the capital distribution.
After selecting candidates and creating an investment portfolio, it is necessary to minimize risks and maximize profits. Experts advise diversifying the basket.
Sergey Kartashov believes that now most startups are risky, but potentially highly profitable. There are also companies with high reliability, but low profit margins.
Diversification implies managing risk. An investor creates such a portfolio so that, under certain factors, it corresponds to the risk/return ratio. Because of this, the given rate of return is maintained and the risks remain within the conditionally controlled framework.