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How much of being an investor is about mathematics or calculations?

To make an investing decision do you mostly focus on mathematical calculations or is it more about gut feel or other judgments? I ask because I want to understand how interesting or boring it might be. I don’t have any trouble with math, but I don’t really want to spend all day calculating things. I’m interested in investing so wanted to learn more about it. Thank you #finance #financial-services #investment-management #investing


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Giles’s Answer

For a lot of investing, math is very important. First to understand the principals of returns, net present value, compounding, etc. then, it gets more interesting when trying to understand topics like duration, which give you a way of comparing instruments.

These is called the quantitative part of finance. There is another area called qualitative, which focuses on the core values of a business. For example, what are its costs vs revenues. What are its growth projections. What about competitors, or market opportunities.


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Seth Daniel’s Answer

For investing as a career, following Albert's advice and blending some finance with mathematics or another quantitative major is very helpful. However, to be "an investor" as you state in your questions, you could choose to study more fundamental basics (company balance sheet interpretation, branding, market placement, asset valuation) and still make informed decisions about which companies or securities to invest in. Many investors without the technical quantitative skills utilize very reasonably prices subscription services if they want a specific kind of analysis at their disposal. I have been investing for 30+ years and spent many years working in the investment management industry, and found that fundamental (as opposed to technical) analysis often provided solid, long-term results.


this is really heipful, thankyou Nandhini R.

this is really heipful, thankyou Nandhini R.

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Albert ’s Answer

Hi Lisa,


The short answer is "a lot more than you might think!". I work in a large investment company, and I can vouch that the top guys in my firm are all very well versed in math. They may have had different majors in college, ranging from Finance to Economics to English to Engineering to anything you can imagine, but they must understand math better than most people can.


The traditional (old!) majors to get into an investment job used to be Finance, Economics and Accounting. Our world now is increasingly dominated by technology, and the people who best understand them are those who major in "hard sciences" like Engineering, Physics and Math.


This is really helpful, thank you! Stacy M.

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Pamela’s Answer

Hi Lisa -


I would say math is only a tool you will need in order to become an investor. In finance, there are several important topics that you could focus on: macroeconomics, fundamental analysis of balance sheets, quant models... Nonetheless, all will require you to use math and solving problem solving skills when making an investment decision.


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Aashish’s Answer

A Lot. At End Investment is Majorly about the math


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Akhil’s Answer

Being in an investor is not only about qualitative knowledge and intuition, but equally about quantitative knowledge. I believe clarity on every financial concept (NPV,IRR, PV,FV, Option value, Call/Put Value etc.) is anyways a must for being an investor, what makes you lethal in the market is how quickly can you spot an opportunity in terms on mathematical values.The faster you can understand numbers, the better equipped you are in the market.


Assumption: You are investing for shorter duration.


You might not require exemplary mathematical knowledge for longer duration investments.


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Mohamed’s Answer

It's just division. Suppose the founder is asking for $X and giving up Y fraction of the company.


If the company is worth $V before the funding event, afterwards it will be worth $X + $V (since it has the extra cash.) The fraction of this value provided by the investor, X/(X+V), should exactly equal the fraction of ownership the investor takes, so:


<h1>Y</h1>

X
/
(
X
+
V
)
Y=X/(X+V)
Y
X
+
Y
V
=
X
YX+YV=X
V
=
(
X

Y
X
)
/
Y
V=(X−YX)/Y
V
=
X
/
Y

X
V=X/Y−X


For example, if the founder asks for $100,000 for 10% of the company then


<h1>V</h1>

100000
/
0.10

100000
=
$
900
,
000
V=100000/0.10−100000=$900,000


Sometimes this will just be approximated as


<h1>V</h1>

X
/
Y
V=X/Y


ignoring the fact that the company will be worth more after it has the cash.


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DECLAN’s Answer

Hi Lisa, its exciting you are considering this this, Math is important but it's also to have good problem solving skills with math content, you can practice this starting today... there is an easy math book called #numbers guide# start today - by the time college comes - you will be ready -- good luck


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