A well-founded investment

 

CHAPTER I

 

INVESTMENT - DEFINITION OF INVESTMENT

Investment, good and well-thought-out like a tree, will give us shade in the form of profits for a very long time. Bad investment can turn out to be not only a failure in life for us but also for our families and even friends or acquaintances. It will affect relationships, friendships and dependencies that inevitably accompany our activities.

Investing is a space for people with imagination. Foresighted, courageous, and above all, those who have adequate assets that they can invest to multiply their peace of mind and that of others. However, it may happen that some of us look for an investor to invest. A person with the right background, willing to put in the money, sometimes the work or time to realize our project, dream or need. Therefore, the way of investing will depend on the wealth of our wallet. After all, not all of us have the adequate resources to cover our ideas!

Ways of investing and searching for an investor must be well thought out. Such activities are similar to a well-planted seed. It can yield multiple crops or no profit at all. Lack of diligence and proper analysis of what we do will not produce the results we expect. Our inept efforts and carelessness will only bring losses and disappointment instead of full satisfaction. So be smart when looking for an investor and no less careful when choosing ways to invest.

I am reminded of a story about a man who talks about the proper management of talents. The moral of the story is that burying talents entrusted to you or your own talents is not a good thing. Action and hard work always bring measurable results! It enriches our life, both in the professional (financial) sphere and in the very private one. Let us now start by defining what an investment is and how modern economics understands it.

 

GLOSSARY DEFINITION

We will start with the simplest one, which is given to us by the Polish Dictionary PWN. An investment is, in other words, an object that is the result of investing; a part of the goods produced that is not intended for direct consumption; the allocation of financial resources to increase or restore assets; the allocation of financial resources and time for (someone's) education with a view to future benefits.

 

STATUTORY DEFINITION

The Accounting Act, in Article 3(1)(17), introduces the concept of investment, which reads as follows:

"Investments are assets held by an entity to obtain economic benefits from the increase in the value of these assets, to obtain income in the form of interest, dividends (shares in profits) or other benefits, including those from commercial transactions, and in particular financial assets and those properties and intangible assets that are not used by the entity, but are held by it in order to achieve these benefits. In the case of insurance and reinsurance companies, investments are understood as deposits.

 

CHAPTER II

 

INVESTMENT - TYPES

Looking at the concept, we discover that economics has divided investments into several types, taking into account their time frame, purpose and object. They can be short and long term. This seems to be the simplest division. On the other hand, the classification according to the purpose distinguishes between investments: replacement, modernization, development, strategic and those that concern the social system or the public interest. The last of the discussed types takes into account the subject of the investment and will include investments: tangible, financial and those that focus on human capital.

In my opinion, investments focusing on human capital are the most interesting, but it is possible that not everyone will agree with this. Let us continue on the path to a fuller understanding of the concept of investment, which is also distinguished by certain characteristics of and determinants of the level of investment. The characteristics will include: the time of implementation of the investment, the expenses incurred for the implementation of a given investment, the expected benefits and the risk of their implementation. The determinants are, of course: revenues, costs, expectations (“confidence” in the economy).

A small digression (...)

To make the article less monotonous, a small interjection that will allow you to catch your breath before reading the rest of the content. I will refer to the aforementioned “human capital”, the definition of which was first introduced by the British economist and professor of political economy Arthur Pigou. He pointed out that human capital refers to all the characteristics and skills of people that make them productive.

After all, people are the most valuable resource of a company. In economic theory, everyone would agree with this thesis because we are the most valuable asset. And what are we like? Independent, free, ambitious, sensitive, changing under the influence of events, emotions and circumstances. Prone to suggestion, burdened by stereotypes, genotype and a thousand other factors, it is probably also the most difficult element to predict. And although it sounds like “cosmos”, it gives us a sense of uniqueness and variety in life. After all, we like to be creative and unconventional!

Let's get back to the topic. To take a look at each of the previously mentioned types and to show a general overview of them. It also seems that all the divisions and differences in the field of investments and the whole topic are quite extensive. However, this is only a first impression, because after a preliminary analysis, it will seem clear and accessible.

 

CLASSIFICATION BY TIME

 

SHORT-TERM AND LONG-TERM INVESTMENTS

We have said that investments can be long-term and short-term. The term that distinguishes the two states is defined as at least one year. And again, someone may say that a year is a long time and another that it is too short. I am reminded of a saying that goes, “Time is money, and money is more than time” (Edgar Allan Poe). In any case, this is how the legislator defines this dimension.

• Short-term investment: the time for their realization will be less than a year. Examples of short-term investments are cash in bank accounts, bills of exchange, checks, or cash in hand.
• Long-term investments, on the other hand, will have a duration of more than a year. These include dividends, future interest, increases in the value of a given investment and other income, e.g. from the lease of purchased real estate, shares, bank deposits, loans granted, etc.

 

DIVISION ACCORDING TO PURPOSE

 

REPLACEMENT, MODERNIZATION, DEVELOPMENT, STRATEGIC, SOCIAL AND PUBLIC INVESTMENTS

• The objective of restoration (also known as revitalization, rebuilding, restitution, reconstruction, or renovation) of the investment object is to restore it to its original state. For example, rebuilding a destroyed infrastructure with buildings, a missing (new) element that matches the remains.
• The purpose of modernization (i.e. improvement, renovation, reconstruction, alteration, modernization) is to reduce costs and increase the modernity of a product, production or other measurable elements of the economy. A good example of modernization is increasing the utility value of a flat that previously did not have water, gas or electricity connections.
• The objective of development (also known as progression, increment, multiplication, intensification, increase, rise) in an investment will be to multiply the anticipated profits in the context of the investment expenditure incurred.
• The investment's strategic objective (i.e. concept, plan, program, course of action, vision, idea) may (in the example of a municipality) consist of developing tourism by making the infrastructure accompanying historical buildings more attractive or increasing the availability of education or cultural and entertainment space for its residents and visitors to the region. It goes without saying that such measures will lead to increased profits and a quick return on investment in the long term.
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The investment and its subsequent objectives (...)

Before I move on to discuss the subsequent investment objectives, I would like to say a few words about a certain thought that arose in the context of the above analysis. The world of economics, accounting and a few other areas related to our term seems to be quite simple and very structured. We humans are great at defining dependencies and economic goals. We are quite good at it.

Human relationships, on the other hand, cannot always be systematized so beautifully. Let's take revitalization and apply it to modern life. For example, wouldn't family, friendship, and colleague relationships subjected to revitalization seem more beautiful and fulfilling to us? And wouldn't modernization itself, in the sense of improvement (preferably of ourselves), be the best investment? Both adequate investment in personal development and an appropriate life strategy would also allow us to enjoy much better relationships with other people. So maybe it's not only worth investing in material goods and multiplying profits? Maybe it is worth investing in our relationships, others and our feelings, and evoking positive emotions. Influencing other people with the right commitment to them?

 

Investment in the social system (...)

• Investments in the social system (i.e. fiscal policy, state subsidies, monetary policy, price regulation, economic protectionism) are all aimed at increasing economic growth, reducing unemployment, and stimulating the flow of people and economic goods through the construction of highways, railways, etc. The state has a wide range of options in this matter, investing in the system, and also having a real impact on the expected results of the actions taken.

By the way, it is quite amazing that the state (since its foundation) has such great opportunities to control, influence and regulate society. This happens not only in our country but in every other country as well. Political systems and authorities, often elected in democratic elections, achieve their previously intended goals. Everything is “the work of man”.

 

Investments in the public interest (...)

• Investments in the public interest (i.e. activities at the district, provincial and national level) encourage administrative bodies to take actions aimed at ensuring the efficient functioning of the state. Starting with investments in the simplest things, such as the construction and maintenance of premises for official and administrative authorities, courts and public prosecutor's offices, public schools, as well as facilities such as hospitals, kindergartens, nursing homes or sports complexes. An interesting fact that is sometimes forgotten is that the activities related to the exploration, search and extraction of minerals are also included here, as well as the establishment and maintenance of cemeteries and the establishment and protection of places of national remembrance.

The objectives pursued by the authorities serve the good of all citizens. Even the Constitution, as the most important state act, serves the public interest. This is a good thing because freedom, justice and all the rights that citizens are entitled to give them a sense of importance as individuals. After all, man is the highest being on earth, and freedom is and will be a priceless good. In the context of freedom, another word came to mind, namely free will. And this is probably the only thing that has been given to us for our complete and exclusive disposal.

We can do whatever we want with our free will. For example, no one can force us to read this article. We use our free will to make decisions. We can succumb to various influences, suggestions or even provocations. But it is our free will that allows us to determine who we are, how we think and, consequently, how we act.

 

INVESTMENT - DIVISION ACCORDING TO SUBJECT

 

INVESTMENTS IN TANGIBLE ASSETS, FINANCIAL INVESTMENTS, INVESTMENTS IN HUMAN CAPITAL

• Tangible investments (in tangible fixed assets and intangible assets) are usually preceded by a cost-effectiveness calculation, a profitability assessment and a risk analysis (sensitivity analysis, scenario analysis, simulation analysis) before the investment is finally made.
• Investment in financial instruments (bonds, shares, investment fund certificates, structured products, ETFs, participation units) is related to the trading of financial instruments on the financial market. In other words, the flow of capital on the market where supply and demand are governed by law.
• Investment in human capital (personnel resources) in its simplest form is organizing training, “investing in talent,” promoting the company's image through “patronage of the arts” in many fields, including mathematics, physics, computer science, medicine, and biology. We should also not forget investments that generate a sense of security and stability as an incentive for future employees. Undoubtedly, it triggers certain social behaviors and contributes to the return on investment of business entities that think this way.

I will stop here for a moment. I will bring up the thoughts on free will that I mentioned earlier because the above criterion related to investments in human capital is somewhat related to manipulation and deviates from this ideal state. Free will can decide the direction of our choices. A strong will can cope with any circumstances, while a weak will is likely to always succumb to pressure and persuasion.

 

CHAPTER III

 

INVESTMENT - INVESTMENT CHARACTERISTICS

At the beginning of our article, we mentioned another division that allows for a better understanding of the topic of investment. The characteristics and determinants of the level of investment that I am talking about include implementation time, expenses incurred, expectations, risks, and costs, revenues, and expectations. They are divided into two groups.

 

DIVISION OF INVESTMENTS ACCORDING TO THEIR CHARACTERISTICS

INVESTMENTS WITH SPECIFIED DURATION, OUTPUT, BENEFITS AND RISK

• Duration of execution is an important element on which the temporal effect of our investment will depend. It will depend on the type of investment. The time needed to complete a construction project will be affected by various factors, including the progress of administrative procedures (the time needed to issue administrative decisions and permits, to comply with relevant procedures or construction standards, to choose the technologies to be used, to carry out additional research, studies, tests, etc.). The weather conditions in which a given investment is to be carried out will also be important. An additional element that will affect the time of completion will also be the experience of designers and contractors, the use of modern solutions and technologies, and efficient management, including proper direction of work from design to completion.
• Expenses incurred in money or kind that result in the construction of new facilities or the improvement of existing ones through reconstruction, expansion, renovation or modernization of assets, as well as expenses for investment equipment and other costs related to the investment. Examples of such expenses are the costs incurred in the acquisition of land, property rights, interest on loans and credits, and perennial plants. All of them must be incurred before the investment starts to generate profits.
• Expected benefits, of which there can be many. Depending on the type of investment, we will multiply the corresponding capital and collect profits. These can include interest on loans granted, dividends from company profits, profits from rental and lease agreements, sales of modernized facilities, etc.
• The realization risk is the estimated probability and impact of events causing the risk to occur. Therefore, events are identified according to their potential impact on the investment realization process. The results form the basis for decision-making in connection with possible adverse phenomena and thus the subsequent elimination of risk and failure of activities.
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CHAPTER IV

 

INVESTMENT LEVEL DETERMINANTS

 

INVESTMENT COSTS, INCOME, EXPECTATIONS

• Costs, their determinant will be the level of interest rates, i.e. the cost of capital. In other words, it is the price that the holder of capital is entitled to for making it available to others for a specified period of time. The cost is expressed as a percentage of the sum borrowed and measured on an annual basis. In other words, a higher interest rate means a higher investment cost.
• Revenue will depend directly on demand. It will probably be influenced by trends determining investment directions, but above all by economic needs on a national and global scale.
• Expectations are, a “state of trust” that allows an entrepreneur to take action according to the assessment of the level and changes in the economy. An anticipated recession, which consists of a very strong slowdown in economic growth, dampens enthusiasm and discourages entrepreneurs from any investment. On the other hand, expansion has the opposite effect to recession and encourages an increase in investment expenditure and expected profits.

To conclude the article, a short summary. I am aware that this is only a brief outline of the broad topic of investments and ways of investing and searching for investors. Moreover, the topic seemed interesting enough to me to try to familiarize the reader with it. I also hope that the topic will be of interest not only from the perspective of investing one's own funds but also those of others. Not only from a definitional or economic point of view but also from one that relates directly to our lives. It is undoubtedly a wonderful space of unlimited possibilities for everyone! After all, it is not only material goods that can be invested in, but also intangible ones such as our feelings! Firstly, let us be more altruistic in our actions, decisions and relationships, and let us think outside the box. Secondly, let us not necessarily calculate every move and decision like we would with coins. I am sure that the satisfaction we get from the results of our actions will exceed our wildest expectations.

Categories: sell transportation company, sell company krakow, sell company

//M.K.

 

Illustrative photo

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