Measure the qualitative aspects of investment

Shailendra Saxena

In the literature on investment we find an overriding emphasis on quantitative aspects such returns on investment, dividend, tax saved, pre-tax return and yield etc. These factors are undoubtedly important. but toady, when in the field management sciences it is increasingly being realised that qualitative aspects or softer issues, too, are quite important, perhaps we need to take a closer look at qualitative aspects of investment.

A person who is impulsive by nature, for instance, is likely to take impulsive decisions in the area of investment. While spending money, he or she may exhibit an impulsive behaviour. And obviously, this will have a significant bearing on his or her money management. In fact, such impulsiveness may negate the gains which may otherwise accrue to this person from an in-depth knowledge of qualitative factors of management.

In another instance, a non-impulsive person may not be able to save sufficient money if he lacks thrift. This extravagance, or a frugal temperament, can and willhave significant impact on the investment behaviour of an individual investor. It is also often experienced by people that when they do not invest a sizable amount of liquid money with them quickly, it gets spent over time completely.

Some other common qualitative factors affecting investment are given below.

Spending on wants rather than needs: In these days when new products are being launched and aggressively marketed everyday, spending on wants is naturally going up steadily and may increase further in future.

Investing on the basis of insufficient knowledge or inadequate homework or sketchy research: Investing without adequate homework in particular is quite common.

Not maintaining proper and complete records of investment: An individual who cannot maintain records cannot be presumed to be a prudent investor.

Getting influenced by herd mentality while investing: This is quite common particularly when stock markets are buoyant or in the event of asudden crash in stock markets. Popularity of a bond issue should also not lead to a herd mentality while investing.

Taking big risks in the hope of becoming rich overnight: Tendency of this type may also negate the gains which may accrue to an individual investor aspects of investment.

Regular habit of saving: This habit can have a salutary effect in the long run. In fact, moderate but regular savings may lead to bigger gains in the long run than in the case where big savings have been affected but it has been dome intermittently.

Raising expectations: If expectations of family members, relatively and friends are raised by maintaining a very high standard of living--not commensurate with one's income -- it will be difficult to save money for investment. This is an important qualitative aspect having significant bearing on investment.

Buying at discount items one really does need very much: In these days when discount sale and credit cards are becomingquite common, people often end up spending money on those items which they don't need urgently. This necessarily affects savings and investment.

The list of qualitative factors affecting investment can be extended further. But what is important here is the fact that we should recognise the role being played by qualitative factors in influencing our savings and investment. When both quantitative and qualitative factors are considered together that we get a truly integrated and monetarily rewarding approach to investment.

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