Evolution of investment opinion: analysis of stages and diversification of approaches
In the history of investment thinking, several key stages can be identified that have had a huge impact on the development of financial theories and practices.
1. The early period of investing was characterized by simple rules: acquiring assets to receive income from their subsequent sale or based on cash flows (dividends, interest). Investors relied on the basic principles of fundamental analysis, such as the price-earnings ratio (P/E) and asset prices.
2. With the development of financial markets and theories, a new stage emerged based on the efficient market model (EMH). This model assumes that all available information is already included in the price of an asset, making it difficult for ordinary investors to make excess profits. This prompted investors to use index funds and passive management.
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3. The third stage is related to the popularization of scientific approaches to investing. One of them is the portfolio investment theory of Harry Markowitz, who proposed diversifying investments taking into account the correlation of the profitability of various assets to minimize risks at a given profitability.
4. The psychological stage of investment thought development is based on behavioral finance. This direction pays attention to non-irrational behavior of investors, which is not explained by traditional financial theories. Investors working within the framework of this paradigm are looking for ways to use cognitive distortions and emotional reactions of market participants to make a profit.
5. The modern stage is characterized by the integration of diverse approaches and technologies . Quantum analysis, machine learning and artificial intelligence have had a huge impact, thanks to which complex algorithms for automated investing have appeared. Today, investors use both fully automated portfolio management systems and combine technologies with classical strategies.