Briefly About Investments

Lamara KoKiauri, Professor, Doctor of economics

A primitive man made the first investment,
when he decided to use a bone as a cudgel,
instead of braking it and eating its brain.
The anonymou

The investment is refusing proceeding. The usage, in exchange of the possible increased income, which will provide more (together progressive and future) usage. Investment is a very difficult concept, which is difficultly realized in the practical flatness (of course, we mean rational, maintained investment and not a primitive placement of sources, hoping its definite success).
It is known that the viability and development of every business and social-economical system depends on the rational investing policy. This politics is very expensive and risky. In other words, there is no investment without expenses (it needs investing of the sources, and the expenses will be compensated by a good calculation), and second, it is completely impossible to divine all those circumstances that expect the investor in the future (there always is the possibility of loosing the investments completely or partly).
These peculiarities of the domain of investment (according to the elucidation, no business can avoid them) request from every businessmen and even ordinary persons, having elementary knowledge of investing. Of course, those students who try to earn enough money for a modern computer or a car; a teacher, who tries to keep money for spending vocation at Cannery Isles; beginning businessman, whose ambitions prevent connecting his dreams and abilities with a hard reality of the common environment; a qualified financier, who feels himself like a bear in a river full of fish; all them have different abilities.
This list can be lasted till the infinity. It’s easier to name the categories of those persons, who have no care for the problem of making a choice between current and future usage.
The investment is always an alternation; it is an intelligent turn from the routine flow, an afford of foreseeing future. Investing activity is a kind of compulsion measure, because every educated businessman, an employer or a manager know that the investment is an unavoidable rational movement, that is always better then immobility and the conversion of Status-Kvo. For example, current industrial capacities might satisfy their owners enough, and only ignorant persons do and know nothing about the fact that these capacities grew old physically and morally. Those specialists, who plan their business prospectively, know perfectly that immobility and immutability are always the beginnings of regress and fall.
As L. Karol said: “You must run fast, to stay at your place. The promotion needs two times faster run”. In the process of investing the leader (firm) tries to “run”. There will definitely be some mistakes in this “run”, but it is also well known, that a sitting person will never falter, “Doing nothing” (we mean – investing inactivity) is not at all the best version of behavior, especially in business. As a rule, the scientists discuss the problem of identification of the investing activity, its environment and attractiveness is the contests of whole country, its regions and separate firms.
The investment businesses are different at the stage of ruling dependence, on which its contests, aim, ways of being fulfilled and possible results are discussed. This distinction is in abilities of investments, in the potentially mobilized resources, possible mistakes in the degree of responsibility and others. First thing is, when we speak about a large region, which tries to enlarge its investing attraction and absolutely different one is, when we speak about an investing program of a small private firm. Taking in mind the fact that the foundation of every modern economy is “a manufacture”, so it comes, that we discuss the problems of investment in the relation with a firm.
Every economy, as a practical activity, is a difficult organism, which consists of organized and connected elements (juridical persons). The civil code discusses the juridical person to be such an organization, which owns or rules separate property is responsible for his/her obligations towards this property; can buy or realize economical or personal no economical rights; answer for his/her responsibilities, be a defender or defendant at a court. Also, the juridical person must have an independent balance or estimation. The juridical person must be registered and act according to a constituent document. It is: a charter (unitary enterprises and noncommercial organizations), an agreement of constituency (for economical comradeship), or charter and the agreement of constituency (for other types of juridical persons).
Depending on the reasons of foundation and their activities, there are two large groups of juridical persons: commercial and noncommercial organizations. Main goal of the commercial organization is guaranteeing stabile increasing profit and it’s distributing among the participants. The goal of noncommercial organization, as a rule, is to solve the social problems. This organization performs industrial activities; its whole profit is not distributed among the participants but goes for solving different social problems.
We can name separately each commercial organization with a term “enterprise”. It can be discussed as a prosperity complex used for an industrial activity. An industrial activity is called an independent word, which is fulfilled under one’s own risk, and must give stabile profit using property, by selling goods, by the work and service made by those persons, who are registered as owners according to the low.
It is evident, that an enterprise (firm) is the main element in making economical system. The goal of such kind of organization and the interaction of the resources is to produce this or that product or service. These are products that are used by every member of the society. So, as big is the produced “pie”, the bigger piece of it will be given to the member of the society, notwithstanding his taking part in the industrial process.
No enterprise works isolated – they collaborate with different elements of the economic system. The enterprise itself has quite a difficult structure of organizations. The appropriate work of the economical organism and its separate consisting elements is discussed in the theory of systems more structurally and logically.
Main difficulty comes on the enterprises in the process of investments. Of course, there are investment projects of national and regional importance, which are fulfilled by the state and municipal departments. In this case, other criteria of calculation and other methods of investment can be used, different from those in the business environment, though there are no principal distinctions. That’s why, discussing principles, concepts and methods of the investing activities, we give the definition of the character of this most important economical category.
According to the spheres of using sources, the methods of investment and used instruments, the investment is the various activities. Main reason for this is the development in new organizational forms, like transnational corporations, finance-industrial groups, financial companies, investment companies and others. Of course, main roles are played by financial banks, which are in the process of development all the time. Most part of the dynamical investments comes right on these banks. That’s why we gave an important attention to the behavior of an investor at the market of securities. We also discuss very accurately such specified concepts as designing investment, venchural investment, and the lysine operation and so on.
One of my most capable students (now a master), who was given by me an issue «Cash Flow in The Sphere of Banking» to learn and find the information about this subject in foreign literature and internet, once said: «Apologize, Mrs. Lamara, why is it so that foreign scientists do not write or write a little about theoretical points». This gave me an idea of starting work at this matter.
Material foundation of the domain of investments. The domain of investments is the combination of the investing economical relations, which guarantee the continuous production of the development of the national economical fields. Different kinds of the investing resources (like natural, technical, financial, labour and others) make its foundation. They may be used in the process of investing this or that economical fields, and also in the process of investing sources into the development of the own material-technical base.
The domain of investments functions within the bounds of the whole economical system and is the part of it. The functioning of the domain of investments guarantees easy continuous production at the expense of depreciation reckoning and also an inevitable growth of the main capital and their modernization.
As a consisting part of an economical system, the domain of investments is regulated by the common marketing lows (lows of request and delivery, cash flow, competing, the economical balance and others) and also by the lows established by the state.
In the domain of investments, as within the bounds of the specific components of the whole economical system, the modification of the economical lows takes place. This process is provoked by the prolonged transformation of the investing recourses into the ready product, later – into the incomes or other profits.
The domain of investments is the foundation of the continuous production and development of the economical system. It is the environment of the economical relations, in which, as a rule, the realization of an economical subject’s innovational strategies take place. The investments represent main forms for the realization of these strategies, which, in the process of the investments transform and, consequently, the idea becomes real.
The level of investing domain development defines the potential of development of any economical system. In the conditions of the marketing economy, creating a strong potential for the domain of investments depends on every industrial structure’s affords, because their activity is oriented upon the innovations and the market requests. The industrial subjects are physical and juridical persons of the private economical sector; the state; state and society enterprises; mixed enterprises with the foreign capital. The active work of each of them influences greatly the rates of structural transformation of the public industry and the rise of the competition ability of the national economics.
The structure of the investment domain. The institutions of market infrastructure, as a guarantee of functioning, occupy an important place in the structure of the investment domain. At a micro-level the following institutions are differed: the investing and innovational funds, banks, business-incubators, industry-financial groups which are in touch with the scientific-technical innovations, and so on. At a macro-level the created ventral funds of supporting and developing the industry function. Within the bounds of the investment domain, the development of the market infrastructure gives an opportunity of hastening the process of changing the innovations into the real objects and guarantees the growth of the country main capital (see the Drought 1.).
The domain of investments represents an economical space, in which the innovations turn into the first means for the effectiveness of the industry and the rise of the production competition ability. Foreseeing this, its role becomes unchangeable in the development and further production of an economical system.
As a rule, the investments are connected with the prolonged existence in the domain of investments. That’s why, the cash and material flows (in the face of the investing expenses) request to bring future expenses down to the current periods, that is the establishing today equivalent of the amount, which will be paid. This process was called the discount of the expenses. The process of investing in the domain of investments means various activities made by the participants of the further producing of the capital growth. Essentially it defines the dynamics of the development of the economical system.
As a consisting part of the society further production, the investing process reflects its main phases: production, distribution, changing and usage. The specification of the investing process is the formation of the subjects’ economical relations around the high profit. That’s why these relations appear as the investing economical relations.
The leading concept of the investment domain is the investing market, where the conversion of investing products is accomplished by commodity-money form.
The instruments of ruling the investment domains. The economical concept of the investment domain is that it is a subsystem of the specific economical relation (investing relation). It is formed in the process of formation and realization of the investments, between the subjects of the investing progress, during their vital cycle. The vital cycle of the investments is the conversion of the investments from the moment of accumulation of the investing resources till their whole throwing back. On the macroeconomic level, it is formed by the sum of the individual circulation of the manufactures and it shows the movement of the values. The latest are advanced in this or that object of the investing activity, in the newly formed and modernized main capital, in the turnover sources, in the securities, in the special cash deposits, in the scientific-technical products, existing rights for the property rights and the intellectual owning and others.
The objects of the investment domain are: state, branch ministries and departments, regional organs of the government, the administrations of the manufactures (firms) and the population. They take part in the process of the investments, which consists of the following parts: investments, leasing buildings, ruling investments and investing relations, projecting-investigating, scientific-technical and industrial-exploitation activities, the legitimate regulation of the investing relations and others.
Those juridical and physical persons, who make investments, invest their own, borrowed or earned sources into the investing capital, are called the investors. The property, financial instruments, an intellectual and informational product, which makes a profit, is called the investing capital. During the investing process, the investors may play the roles of a customer, depositor, creditor, the purchasers of the investing goods, and all these define their character in this process.
The domain of the investments concerns the investing production and the investing infrastructure.
The present activities in the real economical sector belong to the investing production, which is realized in the stages of assimilation and exploitation of the investments’ vital cycle. The infrastructure of the investments is shown with the totality of those fields and institutions, which serve for the investing production. These are institutional-legislative, credit-financial, informational, organizing-controlling subsystems and others.
The investments’ vital cycle and their stages. Between the participants of the investing activities the horizontal relations are regulates according to the agreements, which foresee equal conditions for its realization. Three stages are distinguished in the investments’ vital cycle: pre-investing, investing and exploitation. At every stage of the investing cycle a ruling structure, which has specific governing functions, is formed.
At the pre-investing stage the main goal of the ruling is the working the investing policy and programs out, which concern: the mechanism of their realization; the guarantees and sources of the resources; minimization and ensuring of the risk and registering agreements.
At the investing stage they plan distribution of the investments, organizing the building-assembly activities, effective assimilation of the investments in a short period of time.
The exploitation stage concerns the organization of the manufactures’ production and service, getting profits and full compensation of the investing expenses. The domain of investments has a difficult and dynamical structure. It is defined by the varieties of the investing objects and their vital cycle. It consists of: the building industrial and unindustrialized objects; The built industrial objects which are under the exploitation, not finished investing objects; The investing projects being at the different stages of machining; securities; investing infrastructure; property and other rights about the investing objects and resources.
The dynamicity of the investment domain. The dynamicity of the investment domain is defined by the phenomenon of guaranteeing the permanent flow of the resources by the investment domain, which flow from the producer’s profit, the state budget, regional and local budget, no budgetary, informational, venchural, depreciational, and other funds, also, from the public sources. This makes the investment domain wide. At the same time, the opposite process is going on. This is the process of discharging industrial resources with the help of refusing those ready objects, which have passed the exploitation; the stages of compensating by the main funds, carry out the nature protecting undertakings and others.
Under the influence of the mentioned processes, the domain of investments is essentially changes, and this guarantees the dynamism of its development. The consisting parts of this domain are: the sphere of capital building, innovational sphere, sphere of circulation of the financial capital, the sphere of realization of the right of possession, the sphere of further producing of the human’s potential. Though, even in this face it doesn’t seem to be complete.
The spheres of forming the investing resources and the informational industry, also functions in the structure of the investment domain. The first one is the characteristic of the investing potential dynamic, which defines the investment domain and also rates of economical rise and the extended further producing of the whole economical system. The second one guarantees the movement of the informational sources about the transformation and status of the elements of the investment domain, without which it is impossible to rule the investments effectively.
The material foundation of the investment domain. The investment potential forms the material base of the investment domain. It represents the quantitative and characterizing combination of material-technical, financial, informational, labour and intellectual investing resources.
Transformation of the investing commodity into the investing resources occurs at the investment market on the foundation of state regulation and functioning of the self regulation lows of the market. As a result the structure of investment resources changes itself, because their transformation into the functioning factors of the manufacture takes place, and consequently, they are excluded from the investment resources. It must be said, that this process is clearly recognized in the profits of manufactures, savings of the population and the credits of commercial banks, and also in the process of increasing the role of the various sources of formatting the investing resources. It decreases the role of the state participation n the formation of the investment resources and, consequently, gives rise to the process of making the market self regulation bounds wider.
The investment market. The investment market occupies a central place in the domain of investments, because, exactly here are formed the investment requests and deliveries. That’s why the ruling investment domain requires deep knowledge of its lows. A successful functioning of the investment domain is possible in the case of coordination of its every consisting elements and if it is oriented towards a main figure of the investment market – the customer. The investment market occurs to be the element of further producing of the investing product, as a main form of the movements and realizations of its main parts. It represents the direct (manufacture-investment market-customer) and indirect (customer-investment market-manufacture) relations of the investing process participants. So it becomes as the social form of the organization and functioning of he investment domain. The specificities of the capital being circulating at the market is, that it can have completed (constructing technique, the built constructions, the buildings and others) and incomplete character or it may exist as the investment projects and financial (percentwise) investment. According to this, in the bound of the investment market, they distinguish: the market of building/construction projects, the market of rental activities, the market of investing projects, the market of financial (portfolio) investments and others. Each of them has a specificity of movement of the investments’ flow, which is defined by the kinds of the investment profit.
Notwithstanding the market’s self regulating role in the domain of investment, it can not solve the clerk’s problems with activating of the investing activities. That’s why it is important the state’s and regions’ interfere into the investing process. It means the drawing up the working social-economical policy, which will be aimed towards the forming a profitable surrounding for the country and regions.
As we have already mentioned, the structure of the investment market is not monotonous. A lot of kinds and shapes of the investing commodities appear as the objects of the requests and deliveries.
Only the commodity, which in the process of using gives profit to its owner, is investable. Also, buying such a commodity means the orientation not only upon its current value, but also upon the future opportunities of making profit. A main criterion for the profitability of the investing commodity is the current and expected rate of the percent. Purchasing investing commodity, as a rule, concerns the transmission of the property rights. This process is realized at the property market.
According to the approach accepted in the science, the investment market concerns two stages of the lows: the market of the objects of real investments and the market of the intellectual values. In its turn, these stages are classified by the kinds. Te market of the objects of real investments consists of the several parts: the market of the capital investments, the market of the privatization objects, the market of the real estate and other markets of the objects of real investments. The stock and cash-markets are the parts of the market of the instruments of financial investments.
Information market. The most important from the consisting parts of the investment market is the information market. Here the informational product represents the commodity. It’s important to have the information about the identical or monotonous commodity while purchasing the commodity at the investment market. This gives the opportunity of rational choice.
The market of innovations. Together with the markets discussed above, there is functioning the market of innovations within the limits investing market. Its commodity is the innovational products in the spheres of technique, technology, organization and ruling. In this commodity the newest achievements of the science and mechanics are reproduced. Though the investments made in this segment of the investment market is under the high rate of risk.
The investment market may be represented in the chart form (Drought 2.)
The market of capital-investments. The investment forms and kinds at the market of capital-investments are various. They are the investments realized in new capital constructions, technical reinstrumentation and modernization, widening and others.
The market of privatization objects is represented by those state and municipal undertakings, which must be expiated in the future by the labour collective and other investors.
The market of real estate. The objects of the real estates are: the plots, newly created, renewed and widened undertakings, the buildings and constructions which have different function also money and financial capital. The investing function of the market of real estate is that it appears to be an opportunity for keeping and increasing the value of the capital. Turning the sources and deposits made by the population into the real industrial capital, gives the opportunity of getting income to its owner and represents to be a kind of guarantee of ensuring from the investment risk. That’s why the operations, which are going on at the market of real estate, have a kind of investing concept, because they are carried out for the purpose of making profit or/and getting the capital valuables.
The juridical and physical persons appear as the subjects of activities made at the market of real estate. Among them there are the state ministries and departments, municipal organs, other state and international organizations, which may occur in the role of investor, orderer, and the maker of the activities and the user of the real estate.
At the market of the other objects of the real estate the operations of investing money in noble metal and other material values are carried out.
The stock market. The stock market (the market of securities) represents a part of the market of loan capital, in which the sale and purchase of the securities is carried out.
The stock exchange is the component part of the stock market. It is the regularly functioning market of the securities. Its main goal is to bring together temporarily free money sources of the manufactures and the population in the way of selling them the securities; also to help the movement of the money capital between the economical agents.
Cash market. The cash market is a kind of sales and purchasing market of the money-sources capital and the part of the market of loan capital. Its agents are: banks, brokerage and dealing firms and other financial-credit organizations, which take parts in sale and purchasing of credit money, currency and securities.
The part of the operations realized at the investment market demands the juridical registration of the rights on the purchased objects. It is carried out at a market of property rights. It’s important to say, that for the land, as an investment object, there is a special legislative regime in the face of reduced natural resources. It prohibits the land’s usage for special purpose. It’s important that the modern structure of the investments characterized by a kind of asymmetry. There is noticed large quantity of financial assets towards the materials. Herewith much bigger portions in the structure of financial activity are occupied by the securities, short termed responsibilities and bills of investment character.
Investment institutions. Except the investment market, a lot of other investment institutions, physical and juridical persons, who are producing mediator and consultation activities mostly towards the securities, are the consisting parts of the investment domain. There are: economical agents of the investment, consultants, companies, funds, and investing, innovational and hypothecating banks. Let’s discuss the meaning of these concepts:
The economical agent of the investments is the juridical or a physical person, who has the rights of making mediator operations a t the clients’ expenses and also the client’s entrust at the market of securities.
The investment consultant is the investment institution, whose obligation is to make a consulting service at the market of securities.
The investing company is such a credit-financial institution, which brings together the money sources of private investors by selling the own issued securities. Then the influxed money sources are distributed in the country or abroad – in the way of buying the shares and obligations.
Investment fund. Investment fund is the institution functioning in the form of joint-stock company. Issuing own securities and then by selling them to the petty investors (for influxing the public savings) forms its investing resources. The funds of the closed type issue the shares, as a rule, in single usage and in an important quantity. The new customer can buy it from the previous owner, but in the market price. The open type investment funds issue the share time to time; they are sold freely to the new buyer. This gives the opportunity of increasing the money capital.
According to the made functions, the innovation fund also belongs to the circle of financial resources, the aim of which is financing the projects under the high rate of risk and the projects of the newest scientific-technical machining. The source of this innovation fund is the sponsor subscription of funds, bank and other organizations. These sources are distributed among the instrument searching applications. This happens in the way of competition, also a kind of tender.
In the consistence of innovational funds there are: venture funds, which invest the applied scientific researches and projects; project-construction activity, also involving technical and technological innovations.
Investment bank. The investment bank is such a specialized institution, which purchases the share of the companies and corporations, gives the long termed credits and invests large projects. The peculiarity of these banks is that they do not specialize in getting deposits from the population.
Innovation bank. Innovation bank specializes mainly in the operations of crediting the venture capital, newest machining, also technical and technological progress, into credit. Its main resources are” own sources, the clients’ deposits, the made sources from the participation in the realization of scientific-technical machining.
The hypothecating bank. The hypothecating bank is such a specialized commercial bank, which gives credits under the guarantees of real estate (hypothecate credit) or to buy the real estate. The money resources of the hypothecating bank are formed, as a rule, at the expense of deposits of those clients, who want to get the hypothecating credit; also at the expanse of the bank’s own sources. In the structure of hypothecating banks they distinguish: the agro-banks, which give credits under the land’s guarantee; melioration banks, which give credits for doing meliorating works; communal banks, which give credits under the guarantee of real estates situated in the town.
Investment relations. The material foundation of the existence and functioning of the economical relations in the investment domain are the investments of various kinds and forms. The formation of investments among the subjects (investors) and the formation of the relations in the sphere of widened further production are called the investment relations. In more details, they concern the relations in the domains of investment formation, distributing, investing, transformation, changes, usage and profit. These theories are the objects of investment theory and practice, and ruling them is the subject of the investing management.
In the context of investment domain, they discuss not only the profitable objects, but also of those objects, investments in which do not request making profit. These kinds of objects are: health and nature protections, the improving the sanitary-hygienical conditions and techniques of security and other objects; everything that is in a close touch with the process of humanizing the manufacture and living surroundings. It would be correct to distinguish the industrial and non-industrial investments. It’d not by accident that in the methodology of estimating the effectiveness, together with the economical and budget effectiveness is foreseen too.
The aims of investments. Investment is investing free investing resources (all kinds, money, material and other sources) into this or that object for realizing long termed aims and also for getting profit and social effect.
During the investment it is possible to use own, influxed and borrowed sources in the different combinations, which is defined by the number of inner and outer factors.
The aims of investors are various:
Ø purchasing technique, furniture or land;
Ø building the objects of industrial and unindustrial importance;
Ø purchasing securities, shares, obligation and others;
Ø rising of the educational level or the professional qualification;
Ø purchasing license, a patent for producing definite kind of a product of service;
Ø putting money sources at the banking deposits at a definite percent.
The variety of the aims conditions the got useful result and the existing destinations in its character. Notwithstanding the distinctions of the aims, there is something general that unites all kinds of the investments. This is, firstly, a long termed character of the aims, which requests taking the resources out from the national-economical circulation for a while; secondly – investment means getting profit not in the present period, but in the future; thirdly – getting investing decision leans upon an optimal choice of the ways of achieving objects, which guarantees rational usage of the investment sources; fourthly – a normal functioning and growth of the main potential of the society is provided with the help of the investments, it increases the people’s welfare and the level of their life style. That’s why investments have an important influence upon the development of the national economics.
From the position of the further production of the society, the investment sets the following objects:
Ø Renewal of the main funds, which guarantees the effectiveness of functioning the public production;
Ø Growth of the main capital and, consequently, of the real wealth of the society.
At a macro level the position of the investments is estimated by the following indexes:
Ø full volume of the sources invested into the every field of the public economy;
Ø the portion of the investments in the whole inner product;
Ø the volume of the real investments, investing whole inner sources into the real sector of the economy;
Ø the portion of the real investments used for the growth of the main capital.
Investments in the real sector of the economy are connected with the innovations in the production of techniques, technologies and manufacture. This is greatly supported by the competition. Involving of innovations into the manufacture is always followed by the modernization of the main potential of the country, the economizing of its material and labour resources. Except this, investments in the number of fields, as a rule, gives rise to creating the multiplication effect in other fields. After this the whole inner product rises and exceeds the investment initial expenses.
Intellectualization of the economy. Growth of the modern economy is impossible without involving the scientific achievements and the intellectualization of the main factors of the industry. According to the experts’ prognoses, the intellectualization of the labour and informatization of the manufacture will become the prior factor for the global competition. Already today, at the portion of realized new knowledge of organizing technologies, furniture, education of the personnel and production in the developing countries come 70-80% of the economical growth. It requests a high quality of the state participation in the process of encouraging the scientific-technological progress. Widening the role of intellectualization of the economy has an a particular importance for Georgia, because it is an important factor for overcoming the problems appeared in the structural process of the economy and is the determinant of the stabile economical growth. The process of investments in our country has a spontaneous character. The current economical interests are put before such long termed interests, that which are connected with the investments of the science consuming technologies. This was mostly conditioned by the economical and political instability of the society. The outflow of the left capital in the sphere of speculative operations produced by the securities was the answer reaction to the unprofitable economical conjuncture that was formed in the real economical sector. An important quantity of the money sources was frozen at the manufactures’ accounts.
The situation in the inner economical sector was not better, because in this period the growth of the population’s deposits was not followed by the appropriate growth of the investments.
Its criminalization, development of the so-called “shadowed” sector and the corruption of the state officials damaged the economical system of Georgia. These ruined the economical security of the country. Exactly these gave ways to the outflow of millions of dollars every year from Georgia.
The mentioned process of reducing the investments ruined the industrial potential of the country and gave way to the expansion of the foreign capital at the national market. The way out of the formed economical situation may be giving attention to such leading directions as:
Ø Supporting the most important for the economy fields by the state;
Ø Guaranteeing the stabile investments of the prior economical fields, which will be aimed towards their intellectualization;
Ø Creating insurance and guaranteeing funds for reducing the risks of investing at the state and regional level;
Ø Foundation of the developed infrastructure, which will encourage the development of the public economical complexes.
Definition of the investment process. The concept o “the investment process” is discussed differently in the theory of investments. Different authors discuss it as such a mechanism, which connects the distributors of the money (who has temporally free sources) and the distributors of request (who has requests on these sources). According to such definition, both sides get in touch with each other in the financial institutions or at the financial market. During the real estate arrangement, they get in direct touch with each other.
This definition of the investment process makes an accent only at the investment arrangement, which takes place at the investment market that is the discussed in a narrow context.
Truly, putting an arrangement doesn’t finish the investment process. It continuous in the real sector of the economy, where the income is created and it is distributed by different channels. This gives rise to the necessity of discussing the investment process wider.
It a wide understanding, the investment process id investing of the investing resources into different objects and their successive and time to time transforming until the final realization of the idea and project. In the various works, the investment process is discussed as the participants’ multi-sided activity in the process of further producing of the capital growth. It is in a close touch with the dynamics of the economical system. From this position, the investment process appears as the consisting part of the social further production. That’s why each appropriate stage (phase) of the manufacture is reflected in it, they are distribution, exchange and usage. From the side of the investment wealth movement, the investment business is discussed in an absolutely different concept. It may be discussed as an important reverse connection chain in the process of the further production, which is conditioned by the influence of distributing the production the dynamics of reduced resources – the factors of the industry, which is main capital and labour resources.
The idea and opinion, as a rule, are realized in the concrete industrial project, particularly, in the formatting of the investment portfolio; creating new technique and technologies; improving the organization and ruling; recommending and widening objects of the industrial importance; technical reinstrumentation and building; also, in the building and repairing the unindustrial objects and so on. The realization of the mentioned projects requests the developments of the appropriate investment resources and the realization of the idea in the way of the successive transformation.
Briefly about the origin of the “investment” category. The volumes and forms of the invested sources mostly characterize the work of the separate business executive subject and the country itself.
Category of “investments” comes from the Latin “investire” – to enter. In the period of the feudalism, they called the “investiture” the process of turning the vassal into the owner of the feud. Same word was the definition of appointing the bishops, who took the lands of the churches together with their population to rule. They also had rights of judgment. The process of appointment was followed by the appropriate ceremony of dressing and giving responsibilities. The investiture gave the investitor (in the modern language – the investor) the right of joining new territories and making use of their resources, take part in ruling these territories with the help of the responsible officials and involve own ideology. The latest, from one side, justified the intensive exploitation of the territory, and gave the opportunity of growing the profit out of them, from another side; it played the role of the development factor.
With the changing of times, the “investment” was filled with numbers of different meanings and they began its using in different spheres of activities, and one of its meanings (a long termed investment of a capital in a business) became widely used because of its massiveness. Exactly with this meaning (already as main) it appeared in our language.
The word “investor” traditionally is discussed as a placer of funds, and the word investment – as a placement of funds. This way, while giving its definition, it’s possible to find resemblance with its origin meaning. Truly, during investing money in a business, the investor receives the right of spreading his/her influence upon the object. Mostly the investor is able to realize this opportunity in the easiest way: he/she under the own risk invests own sources and receives dividends from there. It the private occasions, the capital investment takes place for the purpose of giving opportunities of lobbying one’s interests and ideology and also growing own investment income. Such kind of definition gives a multi meaning to the concept of “investor”, but also it moves the meaning of the word to the sphere of nonexistence. The concept of “depositor” (as “to deposit”) is specific for not only one process, but even for any sphere of the activity. Truly, the depositor may be not only the investor, but also, for example, a sponsor, Maecenas or other. That’s why the “investor” must not be discussed as a “depositor”. Changing the idea spoils the understanding of the essence of the investment process and it importantly hinders the formation of the social consciousness about this sphere. There is a necessity of thinking over the essence of the investment process taking in mind the modern reality, also the need of dividing into clear parts all the categories related with this sphere. (We’ll discuss these questions in more details in the chapter three).
An economical concept and definition of the main categories of the investment process. From the monographs dedicated to the investment problems the following methods of approach of the investment process may be separated:
Investment process is identified with the investment businesses and is discussed as the placements of the investment resources into this or that project. In this case the accent is put on the side of investments, which spoils the essence of the investment process and makes the regulating of using this category in the analyze of the economical phenomenon.
The investment process is getting the investment decisions that are that the investment process is brought to the process of the investor’s mental activity and its importance in the development of economical system is not reflected.
The investment process is the part of investing activities and it consists in increasing the invested capital. Such method of approach loosens the category of the investment process and doesn’t open its main point, because it discusses only result of the investment business.
The investment process is the combination of investment businesses, investment surrounding, investment object and subject. In this case the essence of the “investment process” category is not explained. Though, such method of approach gives an opportunity of establishing the hierarchy of the used categories of investment problematic without spoiling its inner concept.
Taking in mind the peculiarities of the existed methods of approach towards the discussing the categories of “investment process” and “investment businesses” must be said that they do not give us the opportunity of putting sharp bounds between these categories; also the opportunity of showing essential distinctions and defining the sphere of their usage.
For eradicating this defect we must discuss the differences between “the process” and “the activity” from the point of the semantic approach. In this case, the process is connection of the successive actions made for achieving an object. From the point of semantic approach, the activity is a concept, which characterizes the function of an individual in the process of its relations with the surrounding. The activity is provoked by the individual’s demands. It is directed towards the subject of its satisfaction and is fulfilled by a special system of the occurrences. It becomes that the process is the social matter, and the activity – individual one. According to the investment problematic, the investment process must be discussed as a process of influxing investors to the investment object for getting effective development of economical system. The investment business, to our mind, is the combination of those actions, which are directed towards the increasing own welfare with the help of the investments.
This method of approach towards the investment process and investment business gives as an opportunity for differs essential distinctions of these categories (see the table 1.1.).
During discussion the categories of “investment process” and “investment business” we must take in mind the fact of their being in a close touch with each-other and the realization of which guarantees the development of the economical system. Taking this fact in mind we must discuss the categories of investment problematic from the position of the systemic approach.
The definitions of the main concepts discussed above, significantly hamper the domain of investment and give the key for understanding the essence of the investment ruling. This is enough for discussing the investment not as a simple placement of the sources, but to consider it as an active method for the investor’s active participation in the object. These give rise to the concepts of “investment attraction” and “investment surrounding”.
The investment business of the mutual related participants of the investment process in the given field, are produced in the formed bounds of the investment domain (surrounding). The intensity of the investment business characterizes the level of the investment assets in the region.
The category of the investment business. The term “activity” has not been used during a long time in the economical publications. Its essence is changing depending upon the reasons. For example, while discussing the economical workings they discuss the economical activity. It is expressed by “the dynamic and level of a concrete kind of the production, workings and services measured by the appropriate natural showings”. While displaying possible results of the money-credit masses and producing operations at the open market, they provide their prognosis foreseeing temporal putting up; also, they learn their influence upon the existed situation in the real sector of the economy. Then they analyze the financial activity, which is expressed by the intensity of operations at the open market. While analyzing and estimating of produced activities from the corner of partnership and making relations between the economical agents they use the category of the “working activity”. It is measured by the indexes of arrangement according sales and purchasing (for the short termed contacts), by the put arrangements and the contract parameters (for analyzing the long termed contacts). The source of this data is the agency information about the commercial abilities and ideas of the participants of the economical relations. While characterizing and estimating the investment business in the investment process, while realizing the rating comparison, while comparing analyzes of the investment decisions in the conditions of different stages of economical development and different levels of the economical hierarchy, the investment business is discussed and researched.
The description and specification of the idea and category loading do not always follow the usage of the category of “the investment business”. In more occasions the investment business is discussed as an existed additional element in the researches of the problems of the investment character and do not analyze and estimate its peculiarities, do not take in mind its influence upon other components of the investment process. For example, in many works the investment business is discussed as the inclination towards the investment, which depends on the investing potential of the manufacture and defines the abilities of their development in the condition of self-financing; by using the borrowed and influxed sources on their abilities and interests. The investment business is also discussed as a result of the collaboration of the investment demands and delivery.
From the method of approach mentioned above, the definition of the investment business clears out, that the interpretation of the category of the “investment business” in the real assets is changed by the fictively realized investment and loosens the bounds of the investment process, restricts it with the straight investment limits.
B. A. Raizberg, L. Sh. lozovski and E. B. Starodubtsev considered the investment business to be a human’s characteristic and its real expression, which is expressed in mobility, economy and investments (according to the investments). Everybody, who protects this idea, make an accent at the psychological reasons of the decisions about investments. They discuss the human’s inner peculiarities, character, psychology and customs. But, when we discuss the human’s outer society being and his/her relations, it’s impossible to establish objectively the factors influencing the human’s psychology and forming his/her decisions, which touches upon own investments in the economy of this or that regions.
In the economical literature they often use the method of approach in which the investment business means the machining of the idea and substantiating the investment project. The formed real technical and material provision, ruling the object’s activity formed at this time (together with its liquidation or changing its profiles) according to the changing outer conditions and the abilities of the set objects. Such kind of definition concerns together investment business and investment assets, also the concepts of planning. This interrupts displaying main peculiarities of the investment business category and its essential points and also the usage of this approach in the process of investment analyzing for avoiding inaccuracy.
Taking in mind mentioned above we must call the investment business the intensity of the investments, which is defined by conforming the current volume of the investments to the previous volume.