Types of Investors
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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. Investment banks 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)
Angel investors
Angel investors
is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital
Sweat equity investor
Sweat equity is a term that refers to a party's contribution to a project in the form of effort , as opposed to financial equity, which is a contribution in the form of capital.
VENTURE CAPITAL
VENTURE CAPITAL
VENTURE CAPITAL
The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc
INVESTMENT BANKING
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.
MUTUAL FUND
Mutual funds
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities
Regret Theory
Regret Theory
Fear of regret, or simply regret, theory deals with the emotional reaction people experience after realizing they've made an error in judgment. Faced with the prospect of selling a stock, investors become emotionally affected by the price at which they purchased the stock. So, they avoid selling it as a way to avoid the regret of having made a bad investment, as well as the embarrassment of reporting a loss. We all hate to be wrong, don't we?
Mental Accounting
Mental Accounting
Hesitation to sell an investment that once had monstrous gains and now has a modest gain. During an economic boom and bull market, people get accustomed to healthy gains. When the market correction deflates investor's net worth, they're more hesitant to sell at the smaller profit margin. They create mental compartments for the gains they once had, causing them to wait for the return of that gainful period.
Prospect/Loss-Aversion Theory
Prospect/Loss-Aversion Theory
Explains why investors hold onto losing stocks: people often take more risks to avoid losses than to realize gains. For this reason, investors willingly remain in a risky stock position, hoping the price will bounce back. Gamblers on a losing streak will behave in a similar fashion, doubling up bets in a bid to recoup what's already been lost. They may believe that today's losers may soon outperform today's winners.
Anchoring
Anchoring
Investment decisions are often influenced by price anchors, prices deemed significant because of their closeness to recent prices. This makes the more distant returns of the past irrelevant in investors' decisions.
Over-/Under-Reacting
Over-/Under-Reacting
Investors get optimistic when the market goes up, assuming it will continue to do so. Conversely, investors become extremely pessimistic during downturns. A consequence of anchoring, or placing too much importance on recent events while ignoring historical data, is an over- or underreaction to market events which results in prices falling too much on bad news and rising too much on good news.
Extreme cases of over- or under-reaction to market events may lead to market panics and crashes.
Overconfidence
Overconfidence
Overconfidence
Overconfidence
Many investors believe they can consistently time the market. But in reality there's an overwhelming amount of evidence that proves otherwise. Overconfidence results in excess trades, with trading costs denting profits.
Greater fool theory
The greater fool theory (also called survivor investing) is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a greater fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to someone else at an even higher price
