An investor is a person who allocates capital with the expectation of a financial return. The types of investments include: equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc. This definition makes no distinction between those in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors. An investor who owns a stock is known as a shareholder.
The assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. The term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from the term Investment is one of degree of risk. It differs from gambling, which is based on random outcomes.
Investors can include stock traders but with this distinguishing characteristic: investors are owners of a company which entails responsibilities.
Types of investors
The following classes of investors are not mutually exclusive:
- Individuals gambling in games of chance.
- Individual investors (including trusts on behalf of individuals, and umbrella companies formed by two or more to pool investment funds)
- Collectors of art, antiques, and other things of value
- Angel investors (individuals and groups)
- Sweat equity investor
- Venture capital funds, which serve as investment collectives on behalf of individuals, companies, pension plans, insurance reserves, or other funds.
- Businesses that make investments, either directly or via a captive fund
- Investment trusts, including real estate investment trusts
- Mutual funds, hedge funds, and other funds, ownership of which may or may not be publicly traded (these funds typically pool money raised from their owner-subscribers to invest in securities)
- Sovereign wealth funds
The term “investor protection” defines the entity of efforts and activities to observe, safeguard and enforce the rights and claims of a person in his role as an investor. This includes advice and legal action. The assumption of a need of protection is based on the experience that financial investors are usually structurally inferior to providers of financial services and products due to lack of professional knowledge, information or experience. Countries with stronger investor protections tend to grow faster than those with poor investor protections. Investor protection includes accurate financial reporting by public companies so the investors can make an informed decision. Investor protection also includes fairness of the market which means all participants in the market have access to the same information.
Investor protection through government is regulations and enforcements by government agencies to ensure that market is fair and fraudulent activities are eliminated. An example of government agency that provides protection to investors is SEC.
Investor protection through individual is the strategy that one utilizes to minimize loss. An investor can protect him/herself by purchasing only shares of businesses that s/he understands or remain calm through market volatility.
An individual investor may be protected by the strategy he uses in investment. The strategy includes an appropriate price of the stocks or assets in the right time he enters. It's hard to fix what "an appropriate price" is, and when it is appropriate because no one makes a purchase or a sale absolutely in his most favorable situation. However, determination may be made when the price of such share or assets are "undervalued" comparing to its potentiality. This is called the margin of safety where an investor can feel at east when the price of the stocks is alarmingly down.
Investor education refers to efforts by the public - government, nonprofit institutions - to enhance the financial literacy of common investors.
Basic financial concepts
- Corporate finance
- Crowd funding
- Growth capital
- Investor profile
- Model audit
- Private equity
- Real estate investor
- Securities offering
- Stock investor
- Sweep account
- Venture capitalist
- Barron's ISBN 0-8120-4631-3
- "Looking at Corporate Governance from the Investor's Perspective". Sec.gov. April 21, 2014. Retrieved 22 April 2014.