Financial Investing
It may seem obvious that investing involves finance, but not all finance involves investing. In fact, finance is not really just about investing. Rather, finance is a tool and process for making good economic (business) decisions.
The twenty-first century financial transactions have placed
a greater need for the synthesis of market and economic
information. The traditional financial approaches are
witnessing the emergence of increasingly sophisticated
computer programmed algorithms obsoleting much of
what we have learned in B-School. Computers are processing
many more types of economic data faster than any human
can. Understanding the basics of finance and investing
are necessary but not sufficient. Sufficiency demands
that one ask “what does it mean?”, the synthesis.
In a world where financial transaction decisions and outcomes can be driven by social media, the explosion of online services, and new virtual assets, new financial models will need to be invented to adapt to a rapidly changing world. Many of these changes will necessitate new approaches to investment risk and hedge models. Financial Management will need to offer executives market-driven Management Discussion & Analysis (MD&A) synthesis with each investment report. Unfortunately, there is too little of this associated with financial and accounting reports, which leads to marginal and even disastrous business decisions.
Adaptive risk assessments will need to include algorithms that can adjust for the new class of assets & derivatives, and social influences with different definitions of risk associated with each asset class. This includes returns with non-normal distributions as the type that could be found with
cryptocurrencies. The new concepts of investment risk may
very well be the opening financial-behaviorists have been
opining for. The new class of digital currencies, virtual
assets and derivatives suggest that they will play a significant
role in propagating financial wealth creation and the
egalitarianism of finance .
Twenty-first century companies boast trillion-dollar market
caps for the first time. Many of these companies such as
Apple ($2.9T), Microsoft ($2.3T), Aramco ($2.2T), Google
($1.8T), Amazon ($1.7T) and others show that services will
be an increasing component to the revenue mix.
While size is no guarantee of continued success, scalable services offer opportunities for increased profitable growth. The cost of these scalable services will offer companies a competitive advantage (Porter). Some of these opportunities are already here in the form of digital currencies, cryptocurrencies, new derivatives, and NFTs. It should be noted that some market reports have stated that some of these may have peaked, I disagree. They are still in a nascent state of development and are still evolving. A new class of investors will continue to focus on investments that promise rapid market scalability with peer-to-peer financial transaction capabilities employing continuous global access.
The speed of evolving markets and a company’s ability to respond to market condition will require different objectives and performance metrics to drive successful strategies. It is the duty of financial management to provide this leadership and analysis, as well as the synthesis. It is the directive of management to maximize the value of company assets. Every department from administration and customer service to sales, marketing and NPD should have a hedge strategy to mitigate downsides, as well as capitalize on market opportunities. Companies without hedge and scalable strategies will increasingly become less attractive investments.
I am encouraged by the new research, definitions, and innovative perspectives in finance regarding equations such as xNPV, AIRR, VaR, Coeff., Correlation, Pricing, Derivative & Greek values, Equity and Asset Valuations etc. They are all providing more relevant investment insights with opportunities for investors to ask "what does it mean to my situation and objective(s)?" These investment insights, together with behavioral financial models, will allow investors to make more informed investment and risk-assessment decisions.
