Investment Principles‍
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Ahmed Majed Badawi Hamza‍
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Prof. Dr. Abdul Ali Kazim Al-Fatlawi‍
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Investment includes a set of general principles for investments, with many things varying, such as the level of environmental impact and the nature of the system in which these investments live, in addition to the type and size of investments, etc. However, the principles of investments can be referred to here as follows:‍
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First). The principle of multiple options or investment opportunities: The comparison between investment projects is subject to several steps, based on the difference in the degree of risk from one project to another, in addition to looking at the costs and what is saved. Here, the investor aims to make a rational decision in light of the above, relying on experts in the field of investment and financial analysis if he lacks experience, taking into account the following:‍
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– Limiting alternatives: The investor here limits, diagnoses and determines all available alternatives.‍
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– Evaluating alternatives: After identifying the largest number of alternatives, with the advantages and risks of each alternative being determined, in order to be able to evaluate all alternatives in logical ways, and this is in light of several criteria, including costs, applicability, degree of risk, investor desires, etc.‍
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– Choosing the best alternative: This is done by reconciling the criteria by which the alternatives were evaluated, focusing on the current and future priorities of the investment project. (Ramadan, 1998: 228)‍
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Second) The principle of suitability: After choosing between investment fields and their tools and what suits the desires and inclinations of the investor, as well as his income and social status, this principle is applied based on these desires and inclinations, as the investor has a preference pattern that determines the degree of his interest in the basic elements of his decision, which are revealed by the fundamental and basic analysis, which are as follows:‍
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– Rate of return on investment.‍
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– Degree of risk associated with the investment.‍
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– The level of liquidity enjoyed by both the investor and the investment tools.‍
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Third) The comparison principle: Here, the investor compares the available investment alternatives to make the appropriate choice. This comparison is made with the desires and material and human capabilities available to the investor, in addition to taking into account the element of technological progress, which plays a major role in costs and returns. Fourth) The principle of diversification or distribution of investment risks: Here, investors resort to diversifying their investments to achieve a trade-off, such as between return and risk, in order to limit and reduce the degree of investment risks to which they are exposed, such as loan risks, exchange rate risks, risks of missing alternative opportunities, and other risks. Investors usually do not take this principle into account due to the obstacles and restrictions that investors are exposed to on the ground (Ramadan, 1998: 230).‍