Investment Process & Strategy – “A Must Know”.


“Risk is part of God’s game, alike for men and nations.” – Warren Buffet


An investment strategy is fundamentally a plan for investing your money in various types of investments that will help you meet your financial goals in a specific period. Every type of investment contains individual investments from which an investor must choose, just as an outfits store sells clothes which consist of shirts, dresses, skirts, etc. The stock market is a type of investment which contains different types of stocks comprising various companies that one can invest in.

It is worth noting that Investment is about risk and expected return; a high-risk investment offers a higher return as compared to a lower-risk investment and vice versa.

The investment process describes the steps that an investor should take to construct and manage their portfolio. These proceed from the initial task of identifying investment objectives through to continuous revision of the portfolio in order to attain an investment objective.

The Investment Process

The investment process outlines the steps in creating a portfolio, and emphasises the sequence of actions involved – from understanding an investor’s risk preferences to asset allocation and selection to performance evaluation. Emphasising the sequence provides an orderly way in which an investor can create his/her own portfolio, or a portfolio for someone else.

Further, the investment process provides a structure that allows investors to rigorously analyse the different components needed for successful investments. A thorough approach to investment is explained below:


  1. Determine Objectives – Every investor must have an objective for investing. An investment policy must be guided by a set of objectives. Before investing, a clear idea of the purpose of the investment must be obtained. The purpose of every investment will vary between investors. Some may be concerned only with preserving their current wealth, while others may see investment as a means of enhancing wealth.

The primary driver of most investment objectives is the attitude of the investor toward risk. Some investors may wish to eliminate risk as much as is possible, while others may be focused almost entirely on return and be willing to accept significant risks. Nevertheless, all investment objectives must be engineered by some analyses of risk as compared to expected returns. This is because risk and return may have serious consequences on funds invested.

  1. Choose Value – The second decision has to do with the amount available for investment. This decision can be considered separately or be subsumed in the allocation decision between assets. Funds not invested should generally be held in some other form. It is advisable that an investor allocates such funds for some other purpose that leads to increasing the investor’s asset so as not to consume such funds. An example of such investment could be the purchase of land (which in itself is a form of investment).
  2. Conduct Security Analysis – Security analysis is the study of securities’ returns and risks. This is undertaken to determine classes of asset investments which will be held, and to determine which securities in particular should be purchased within a class. Mostly, investors find it easier to remain in basic assets such as stocks and fixed income securities rather than venture into complex instruments such as derivatives.

Once the class of assets has been determined, the next step is to analyse the chosen set of securities to identify relevant characteristics of the assets – such as their expected returns and risks. Another reason for analysing securities is to attempt finding those that are currently mispriced.

For example, a security that is underpriced for the returns it seems to offer is an attractive asset to purchase. Similarly, a security that is overpriced should be sold. Whether assets are underpriced or overpriced depends on the degree of efficiency in the market where securities are traded.

Security analysis can be undertaken using two alternative approaches:

  • Technical analysis – This is the examination of past prices for predictable trends. Technical analysis employs a variety of methods in an attempt to find patterns of price behaviour that repeat through time. If there is such repetition (and this is a disputed issue), then the most beneficial times to buy or sell can be identified.
  • Fundamental analysis – The basis of fundamental analysis is that the true value of a security has to be based on the future returns it will yield. The analysis allows for temporary movements away from this relationship, but requires it to hold in the long-run. Fundamental analysts study the details of company activities to makes predictions of future profitability, since this determines dividends and hence returns.
  1. Portfolio Construction – Portfolio construction is the next step after analysing a security. It is the determination of the precise quantity to purchase of each selected security. A factor that is important to consider is the extent of diversification. Diversifying a portfolio across many assets may reduce risk; however, it involves increased transaction cost and also increases the effort required to manage the portfolio.
  2. Evaluation – Portfolio evaluation involves assessment of a chosen portfolio’s performance. To do this, it is necessary to have some form of yardstick for comparison. This is because a meaningful comparison is only achieved by comparing the return on a portfolio with that of other portfolios with similar risk-characteristics.
  3. Revision – Portfolio revision involves the application of all the previous steps. Objectives may change, as well as the level of funds available for investment. Further analysis of assets may alter the assessment of risks and returns, and new assets may become available. Portfolio revision is therefore the continuous reapplication of investment process steps.

Even though application of the investment process is necessary, the importance of crafting an investment strategy cannot be overemphasised.

Crafting the Optimal Strategy

For simplicity’s sake, funds available to an investor may be classified into short-term, medium-term and long-term horizons. Each of these horizons has peculiar strategies and implications for investment goals and asset selection.

  • Long-Term Horizon

The investor with a longer-dated horizon normally seeks long-term growth of capital via a diversified portfolio that invests primarily in the listed shares of companies selected for long-term growth potential. Most aggressive investors in this category also take solid positions in private equity funds. Such portfolios provide instant diversification by adopting a bottom-up stock selection style, backed by fundamental research.

A typical global long-term investor normally holds a core position of between 40 and 55 globally diverse common stocks. The number of securities held may occasionally exceed this range at times; such as when the investor is accumulating new positions, phasing out and replacing existing positions, or responding to exceptional market conditions. Such investors have a higher-than-average risk and volatility appetite.

  • Medium-Term Horizon

This style seeks to provide medium-term, conservative capital growth while generating current income by investing primarily in companies and sovereign issuers globally. This style offers a globally diversified portfolio aimed at securing high medium-term returns while preserving invested capital. Medium-term investors leverage on in-depth research to build a diversified portfolio of core holdings – usually of opportunistic stocks with additional investment in income-oriented securities. A good portfolio manager must reduce investment risk by diversifying across countries and various asset classes.

  • Short-Term Horizon

This category of investor invests exclusively in short-term government and corporate fixed income obligations, seeking to generate attractive yields while maintaining significant liquidity and preserving capital. Short-Term Income portfolios comprise short-term Treasury bills, money market instruments, high quality corporate commercial paper and secured notes. A high level of liquidity is maintained through fixed cash deposits. This style utilises a short-term income, security and liquidity focused strategy, and is not suitable for investors who require long-term capital growth.


Whether you are a portfolio manager or an individual, you need to always identify the investment strategy to be applied for your investments. Additionally, an investment process helps to rigorously analyse and select specific investments out of the various investment options available on the market.

Investing is not a sure thing in most cases; it is much like a game you do not know the outcome of until the game has been played and a winner has been declared. Whenever you play almost any type of game, you have a strategy and a process. Investing isn’t any different; you need an investment strategy and process to be a successful investor.

Omega Capital Limited is an Investment management, private equity and   investment advisory firm. The Company is authorised and regulated by the Securities and Exchange Commission of Ghana.

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Kumapremereh Nketiah (JP)

Sophia Obeng- Aboagye


Omega Capital Research

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Additional information is available upon request. Information has been obtained from sources believed to be reliable but Omega Capital Limited (“Omega Capital” or “The Firm”) does not warrant its completeness, accuracy or veracity. The firm is licenced and regulated by the Securities and Exchange Commission of Ghana (SEC). This material is for information purposes only and it is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and estimates herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information.

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