What is an investor?
An investor is an individual, company or any entity that invests capital with the aim of making a profit. The investor’s main concern is to maximize return while minimizing risk.
Speculators, who hope to make a higher-than-average profit, have a greater risk tolerance than investors.
There are several types of investments, including real estate, commodities, currency, derivatives, bonds, stocks, etc. Even time (which costs money) is a form of investment.
Revenue Land has the following definition of investor:
“A person, company, or other entity that commits funds with the expectation of a return on investment, i.e., that they will get back more than they put in.”
Investors may provide loans, buy shares, guarantee to pay creditors, or even contribute with labor.
An investor commits resources to a project or business, expecting to gain a future benefit.
Investors may operate both in the primary (injecting capital into a business) and secondary markets (buying stocks from other investors). In other words, they may either make a commitment in exchange for a stake in a business, a fixed return (dividends or interest), or sell their investment later on for a higher price.
When two companies commit to a joint venture and contribute funds to it, they are both investors.
Many people get together and form investment clubs, which pool their resources and knowledge together in order to get more successful investment outcomes.
Etymonline.com says that the English word ‘investor’ emerged in the 1580s with the meaning ‘one who clothes’. In 1862 the meaning had become ‘one who invests money’.
The word ‘investor’ in Spanish is ‘inversor’, Portuguese – investidor, French – investisseur, Italian – investitore, German – Investor, Russian – инвестор, Japanese – 投資家, and Chinese – 投资者.
Two types of investors
There are retail investors and institutional investors.
Retail Investors: somebody who invests for his or her own personal account rather than for a company or organization. This category also includes collectors of things of value such as antiques, stamps, coins and art.
Angel investors, those who invest in start-up companies with their own money, are retail investors.
Institutional Investors: these are entities which pool money to invest including companies, institutions, and **private equity funds, which operate as investment collectives on behalf of high net-worth individuals.
** Private equity refers to investments made in private companies, i.e. those not listed on stock exchanges.
Those managing pensions plans, insurance reserves, investment trusts, mutual funds, hedge funds, and other funds are also institutional investors, as are businesses that invest either directly or through a captive fund.
– Steve Forbes, Editor-in-chief of business magazine Forbes, said:
“One thing on psychology, which we’ve always known, is that every investor says they’re long-term – and they are until the market takes a hit.”
– Warren Buffett, an American business magnate, investor and philanthropist, said:
“The investor of today does not profit from yesterday’s growth.”
– Bill Gates, the richest person in the world and co-founder of Microsoft Corporation, said:
“I’m an investor in a number of biotech companies, partly because of my incredible enthusiasm for the great innovations they will bring.”
– Jamie Dimon, Chairman, president and chief executive officer of America’s largest bank, JPMorgan Chase, said:
“The United States has the best, deepest, widest, and most transparent capital markets in the world which give you, the investor, the ability to buy and sell large amounts at very cheap prices. That is a good thing.”
An investor might be investing time or energy, and not just money.
Experts say that an investor should first build an investment philosophy before parting with his or her money; otherwise there is a greater risk of unsuccessful outcomes.
Video – Difference between an investor and a trader
In this video, David Winters, CEO of Wintergreen Advisers, explains why investors are the ones who get rich, rather than traders.