Automatic investment management - theory and applicability

Abstract

In today’s fluctuating world, one needs to find a way to grow his/her money in the long term for a safe future. But since the return on investment is not always clear in the long term scenario, investors prepare a strategy which deals with the ongoing challenges in investment such as risk and return. A long term investment strategy is based upon two main factors: (i) Long term goals (ii) Risk involved with the investment The best long term strategy would be the one which gives high returns with minimum risks. A balanced investment strategy is generally required in the process of investment, which possesses long time period and some risk tolerance. The aggressive strategies will provide a higher chance of achieving higher goals but an efficient strategy will try to achieve a balance between the risk and the return. Such strategy can be obtained from portfolio theory, which shows good estimates on risk and return. Investment Strategy is usually considered to be more of a branch of finance than economics. It is defined as set of rules, a definite behavior or procedure guiding an investor to choose his investment portfolio. There are two basic methodologies that the investors employ to determine a strategy for long term investments. These are: 1. Fundamental Analysis 2. Technical Analysis Investors often use these different but somewhat complementary strategies either separately or as a combination. Many fundamental investors use technical analysis for deciding entry and exit points. Similarly, many technical investors use fundamental analysis to limit their universe of possible stock to 'good' companies. Both of these methodologies are explained in detail as follows: