The Investment vs. the Investment Environment

The Investment

Investments are the most talked about area of investing. It is also the one that is the most stable area for judgment. Investments can be valued by a number of common measures that are easy for people to understand. When prices don’t behave as investors expected, they become uncertain and start to act on their emotions. They don’t seem aware that external market factors have a greater influence on prices than the fundamentals of the stock.

They also forget Wall Street has never met an investor demand they couldn’t saturate. Too many shares can hurt prices while fewer shares can take prices higher without earning a dime more. Investor emotions also have cycles that influence prices to extremes. Investors need different strategies or plans to grow and preserve their assets through an entire economic and investor behavior cycles.

The Investment Environment

The investing environment includes things like where we are in an economic cycle, rate and direction of interest rates, rate and direction of income taxes and other taxes, legislative trends, geo-political trends. Each of these things influence the perceptions and illusions of investors which in turn influences what prices they will value their investments. Rising interest, taxes or regulation may result in lower stock prices. The reverse is true when they fall.

Interest rate and income tax rate trends have major influences on valuations. The trends can last for years which are long enough for people to forget the trend can reverse direction. Geo-political events like the economic growth of China can have influences for decades and change the balance of world power. Different legislation and regulations around the world can also create problems and opportunities on investments. An investor watchful for trend changes will have an advantage over many investors who ignore changes.