Four Approaches to Information Technology Infrastructure Investment

FOUR APPROACHES TO INFORMATION TECHNOLOGY bag enthronisation Presented by Kemeasoudei Fanama (u0856287) WHAT IS INFORMATION TECHNOLOGY? Information technology is defined as the study, design, development, implementation, support or management of computer- based information systems, oddly softw atomic number 18 system applications and computer hardw ar. IT deals with the use of electronic computers and computer softw ar to convert, store, transmit, process, protect and securely retrieve information. APPROACHES TO INFORMATION TECHNOLOGY base of operations INVESTMENT 1.Fundamental cash advance The basic tenets of the implicit in(p) climax, which is perhaps most commonly advocated by investment professionals, are as follows There is an inseparable regard as of a security and this depends upon underlying economic (fundamental) factors. The intrinsic value can be established by a penetrating analysis of the fundamental factors relating to the company, industry, and economy. At an y given point of time, in that location are some securities for which the prevailing market price would differ from the intrinsic value.Sooner or later, of course, the market price would downslope in line with the intrinsic value. ? ? ? Superior progenys can be earned by buying under-valued securities (securities whose intrinsic value exceeds the market price) and selling over-valued securities (securities whose intrinsic value is less than the market price). APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT (continued) 2. Psychological Approach The psychological come along is based on the bring in that stock prices are guided by emotion, rather than reason.Stock prices are believed to be influenced by the psychological mood of the investors. When greed and euphory sweep the market, prices rise to dizzy heights. On the other hand, when fear and despair envelop the market, prices fall to awful low levels. Since psychic values appear to be more important than intrin sic values, the psychological approach suggests that it is more profitable to analyse how investors tend to behave as the market is swept by waves of optimism and pessimism which reckon to alternate. The psychological approach has been described vividly as the castles-in-air theory by Burton G.Malkiel. Those who subscribe to the psychological approach or the castles-in-the-air theory generally use some form of technical analysis which is concerned with a study of internal market data, with a view to developing trading rules aimed at profit-making. The basic premise of technical analysis is that there are certain persistent and recurring patterns of price movements, which can be discerned by analysing market data. Technical analysts use a variety of tools like bar chart, point and pick up chart, moving average analysis, breadth of market analysis, etc.APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT (continued) 3. Academic Approach Over the last five decades or so, th e academic community has studied various aspects of the capital market, particularly in the advanced countries, with the help of jolly sophisticated methods of investigation. While there are many heart-to-heart issues and controversies stemming from studies pointing in different directions, there appears to be substantial support for the following tenets. Stock markets are jolly efficient in reacting quickly and rationally to the flow of information.Hence, stock prices reflect intrinsic value fairly well. Put differently Market price = Intrinsic value Stock price conduct corresponds to a random walk. This means that successive price changes are independent. As a result, past price behaviour cannot be used to predict future price behaviour. In the capital market, there is a affirmatory relationship between risk and return. More specifically, the expected return from a security is linearly colligate to its systematic risk. Stock price behaviour corresponds to a random walk. This me ans that successive price changes are independent.As a result, past price behaviour cannot be used to predict future price behaviour. In the capital market, there is a positive relationship between risk and return. More specifically, the expected return from a security is linearly related to its systematic risk APPROACHES TO INFORMATION TECHNOLOGY INFRASTRUCTURE INVESTMENT (continued) 4. ? Eclectic Approach The eclectic approach draws on all the three different approaches discussed above. The basic expound of the eclectic approach are as follows Fundamental analysis is helpful in establishing basic standards and benchmarks.However, since there are uncertainties associated with fundamental analysis, exclusive reliance on fundamental analysis should be avoided. Equally important, immoderate refinement and complexity in fundamental analysis must be viewed with caution. ? Technical analysis is serviceable in broadly gauging the prevailing mood of investors and the relative strengths of supply and demand forces. However, since the mood of investors can part unpredictably excessive reliance on technical indicators can be hazardous.More important, complicated technical systems should normally be regarded as suspect because they often represent figments of imagination rather than tools of proven usefulness. The market is neither as well ordered as the academic approach suggests, nor as speculative as the psychological approach indicates. While it is characterised by some inefficiencies and imperfections, it seems to react reasonably efficiently and rationally to the flow of information. Likewise, contempt many instances of mispriced securities, there appears to be a fairly strong correlation between risk and return. ? thank YOU