Question

There are a few advantages and disadvantages to short term and long term investments. Long term investments are easier to risk because of the time period, however some people prefer to invest in short term investments to test the risk first. Making a decision on which method to proceed with depends on the individual or the company, its past financial activities and how much the individual or company is willing to risk. There are 4 strategic purposes for investing in a Long term investments:

1. Reduction of costs: when one company buys another company, the combined company may be able to reduce administrative costs

2. Replacement of Management

3. Expansion

4. Integration: a companh may integrate operations by acquiring a supplier or customer

Question: Do the above strategic purposes of long term investments also apply to Short Term Investments? Why or why not?

Answer 1

Investing isn't typically a get rich quick tactic that you can do for a short period of time and expect to make a significant amount of money. It's often a long-term process that requires patience, commitment, and keeping calm when the market fluctuates, as it inevitably will.

The above 4 strategic purposes of long term investments do not apply to Short Term Investments because of the following reason :

1. Reduction of cost - This strategy will only work in long term investments, not in short term because the reduction of cost will occur only after a long period as the production will increase by satisfying customer that help in maximizing the sale and this process takes a long time says 10 years or more. So This strategy is possible only in long term investments.

2. Replacement of Management - As a company just change its management, now it has to keep a focused and self-motivated management just to maximize the profit and the management has to take a long time period to know about the company and is possible only in long term investments.

3. Expansion - As you know already that expansion is a big process, one has to think about what has to expand, where to and how to. Its a long process in deciding the matter regarding expansion. This expansion purpose does not apply to Short Term Investments.

4. Integration - Integration is just another word of expansion. If a company may expand its operation by acquiring a supplier, then it is termed as backward integration or if a company may expand its operation by acquiring a customer then it is termed forward integration.  So it means that integration may be possible in the long term and does not apply to short term Investments.

So these 4 strategies are only applicable to long term investments and do not apply to Short Term Investments.