Influencing Factors on Investments
There are several factors that can influence the performance of fund investment, here are some of the key ones:
Economic
If a country’s economy is struggling then the companies within that country are almost certainly struggling too. Perhaps the exports are down, or their currency is comparatively devalued, or the cost of borrowing increased, corporate loan payments draining profits.
Perhaps the companies which form the majority investments within a fund have no problems in their own country but their customer base has problems e.g. semi-conductor manufacturers in the East will struggle if there is low demand in other countries
On the positive side, a buoyant economy can provide excellent growth opportunities for companies within that country
Similarly, demand for the products of companies within the fund will increase company value and therefore fund prices
Commercial
It can be that the product or service provided by a company becomes outdated, uncompetitive, or of unreliable quality. In this case the company will lose orders, revenue, profit and thus stock value.
On the opposite side, all investors would hope to invest in a company just prior to a sudden breakthrough in sales, reputation and of course increased stock value
Social (including religion and politics)
If there are strong religious or political movements which can impact upon a country’s economic stability, or on the demand for a companies products or services, then the stock of such company could be volatile / high risk
Again, there can be a positive impact from social issues. Take the ‘Green’ movement for example. They have helped to drive a demand for ‘Green’ products which creates a larger market for such companies and therefore more revenue and profits
Scandal / Media
A company can benefit or suffer due to publicity
If the company, or one of it’s leading figures, becomes ‘hot news’ for the wrong reasons then people wish to distance themselves from that company and their sales and their stock price will suffer
Alternatively, good press will help drive positive belief in the growth and future success of a company, thus making their stock more attractive and valuable
Sometimes companies will deliberately create publicity in an attempt to gain attention e.g. Benetton’s invariably controversial adverts
The Overall Influencing Factor
Is………?
Supply and Demand. All of the above factors will have an impact upon the desirability of investing in certain companies, or sectors of industry, or countries, or regions. That desirability is what drives values.
If nobody wishes to buy then prices will fall and keep falling until they reach a price which people will pay.
If lots of people wish to buy then those selling can command higher and higher prices.
Eventually someone will lose out, as values will not increase forever – there will be highs and lows driven by factors such as those listed above. The timing of such events is key. This is where fund managers are meant to excel – they need to be better than the rest of us in the timing of such events and switch their investments to alternative stocks. However, they are only better than most, not perfect, and funds can lose money due to missed timing or simply because the whole underlying sector or region is under performing.
So how do you make money against so many odds? Well, historical performance shows us that if you ride out the highs and lows over a long period of time (such as 10 – 20 years) then equities remain your best statistical chance of growth above inflation.
Also, diversification is important so that your investments are not totally reliant upon any one particular industry, country, or region. This decreases your odds of losing all your money and provides a good opportunity for you to make reasonable and potentially high returns over the longer term.
