Variables in marketable securities selection (investments)
While considering a decision to invest in marketable securities every portfolio manger (you) must analyze how each potential investment purchase relates to certain key investment variables:
Safety
The most basic test that all investments much pass is the first concern of safety of invested principal. It indicates the probability of getting back the same amount of fund that has been invested. Safety is judged relative to US Treasury bills which are considered certain if held to maturity. For investments other than the treasury bills, the safety of the investment depends upon the issuer and the type of investment instrument issued. A relatively high degree of safety is a must for short term investments and a moderate safety quotient is necessary for long term investments.
Marketability
The marketability of the liquidity of the investment (security) is related with the investor’s ability to convert the investment into cash at short notice. Although it is possible for an investment to be safe it might not be possible that is always easy to sell the investment instrument before maturity without incurring a loss (although marginal). In general a large secondary market where the investment instrument can be actively traded after issuance is necessary for the investment to have a high marketability or liquidity. No brownie points for guessing the secondary market availability for investment instruments like shares of a company, or the commodities market. Go ahead and share a list of other such instrument which has secondary markets (you are invited to put up your comments)
Yield
The yield or the return on your investment is related to the interest / appreciation in the value of your principal invested in the instrument. The higher the investment the higher would be the risk associated with the investment instrument.
