Fundamentals of Investing and Effective Investment

Question: Discuss about the Fundamentals of Investing and Effective Investment. Answer: Introduction: The study mainly helps in evaluating the significance of effective investment research, which could be conducted on behalf of Mr Z before investing in real estate in Singapore. Moreover, the study also helps in evaluating the equity stocks, mutual funds and property investment, which could be used by MR. Z to increase his return from investment. In addition, the novice effectively evaluates the six-investment proposal, which is being monitored by Mr. Z and depicts investment products that could be used in providing higher revenue. Evaluating the investment provided to MR Z: Investment per sq ft price per sq ft Amount Expected rent Property 1 1,200 SGD 2,200 SGD 2,640,000 SGD 6,500 SGD 9,500 Property 2 1,000 SGD 2,500 SGD 2,500,000 SGD 7,500 SGD 9,800 Current share price Net Book Value Price to book ratio Dividend yield (%) Average Traded Volume Able ltd 7 8.8 0.795 1.75 12.5mn Bounty ltd 1.2 1.6 0.75 2.25 1.5mn C-REIT 1.75 1.5 1.167 4.5 5.5mn D-REIT 1.8 1.9 0.95 5.75 20.0mn Table 1: Showing the six investment opportunity (Source: As created by the author) With the help of table 1, the overall investment opportunity presented to Mr. Z could be effectively evaluated. In addition, the table also portrays the price to book ration by analysing the net book value of each investment. In addition, the property investment is also effectively evaluated presenting the income, which could be generated. In this context, Baumohl (2012) stated that with the help of adequate research investors are able to determine the valuation of the stocks and make investment decisions, which might increase their overall profitability. On the other hand, Bernstein, Lerner Schoar (2013) criticises that during an economic crisis that overall valuation of the stocks is decreased, which in turn provides risky investment opportunity for the investors. Recommended investment for Mr. Z: Investment per sq ft price per sq ft Amount Expected rent property 2 1,000 SGD 2,500 SGD 2,500,000 SGD 7,500 SGD 9,800 Current share price Net Book Value PB Dividend yield (%) Average Traded Volume Able ltd 7 8.8 0.795 1.75 12.5mn D-REIT 1.8 1.9 0.947 5.75 20.0mn Investment per sq ft price per sq ft Amount Property 2 1,000 SGD 2,500 SGD 2,500,000 Current share price Number of Shares Amount Able ltd SGD 7 162,000 SGD 1,134,000 D-REIT SGD 2 758,888 SGD 1,365,998 Total Investment SGD 4,999,998 Table 2: Showing the investment opportunity for Mr. Z (Source: As created by the author) In addition, table 2 mainly portrays the overall investment opportunity, which could help Mr. Z to generated higher return from investment. In addition, segregating the investment with equity, mutual fund and property investment could eventually help Mr. Z to reduce his risk from investment. Furthermore, Mr. Z could effectively invest in Commercial Office, Able Ltd and D-REIT, which might help in reducing risk from investment. Nanda Rhodes (2013) suggested that investment segregation is an effective rule, which is mainly followed by investors all around the world. Evaluating the investment in Able Ltd: Based on average volume traded and price to book ratio Able Ltd is a much better option than Bounty Ltd for investment. In addition, Able Ltd average volume traded in six month is around 12.5 million, where Bounty Ltd has only 1.5 million shares traded on average basis. This mainly indicates that Bounty Ltd shares are more volatile to price movement and could provide negative return during any crisis. In addition, price to book ratio of Bounty Ltd is better, which mainly indicates that shares are being traded on discounted price. However, comparing both average traded volume and price to book ratio Able Ltd is opted as a better safer bet for Mr. Z. Hwang, Zhao Toh (2014) argued that shares that not heavily traded are most vulnerable and during an economic crisis, which in turn reduces investment return of the investors. Evaluating the investment in D-REIT mutual fund: Furthermore, D-REIT has increased net book value, dividend yield percentage and average traded volume than C-REIT, which mainly indicates a better investment opportunity. In addition, price to book ration of D-REIT is lower than C-REIT, which might help MR. Z to accumulate the investment in discounted rate. Moreover, D-REIT could effectively provide a higher dividend than C-REIT and increase income of Mr. Z. Lastly, high volume traded in D-REIT interment could effectively help Mr. Z protect from any kind long price movement conducted in the mutual fund. Baum Crosby (2014) stated that evaluation of return generation capacity could help investors pinpoint mutual funds, which could provide higher return from investment. Evaluating the investment in Commercial property: Figure 1: Showing the office price index for Singapore (Source: Singapore New Property New Condo Launch For Sale, 2016) The investment in commercial property is the moist beneficial decision as it needs less investment and provides higher rent from Residential Condominium. Furthermore, the office space is in high demand and could be provide higher return in few years. In addition, figure 1 mainly helps in evaluating the overall rising price index of office space in Singapore. However, Deng Wu (2014) criticises that increased supply of office space might reduce demand and negatively affect prices of the property. Thus, investment and rent from commercial property could eventually increase and provide higher turn from investment for Mr. Z. Evaluating Risk from investment: Furthermore, the overall interment in Able Ltd, D-REIT and Commercial property could be effectively hampered during an economic crisis, which was witnessed in 2008. In addition, the increased supply of property and less demand could also reduce overall prices (Reddy, Higgins Wakefield, 2014). In addition, the decreasing demand of the property might negatively affect all the recommend investment options to Mr. Z. Conclusion: The study mainly helps in evaluating the risk and opportunity, which are presented to MR. Z for increasing his overall wealth. In addition, the evaluation of overall six investment options mainly helps the novice to present with the adequate investment opportunity. The novice effectively depicts the accurate stocks, which could provide a higher return from investment. In addition, investment in Able Ltd, D-REIT and Commercial property could mainly help MR. Z to increase his overall wealth. Reference: Baum, A. E., Crosby, N. (2014).Property investment appraisal. John Wiley Sons. Baumohl, B. (2012).The secrets of economic indicators: hidden clues to future economic trends and investment opportunities. FT Press. 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