Security Investment Science

Author: Hu Changsheng, Xiong Heping, Cai Jidong
Publisher:
Publish Date: 2002-02-01
Features: Securities Investment is an applied economic discipline based on numerous disciplines, specializing in the study of people's securities investment activities and their laws. With the evolution of investment practices, securities investment theory in the West has undergone four centuries of development. According to the generally accepted division, securities investment theory has experienced three stages of development.
Stage 1 is the germination stage of securities investment theory (17th century to the end of the 19th century). Due to the limited regulations on stock and bond trading during this stage, they were insufficient to influence the economic operations of a country or region. Governments and the public did not pay enough attention to securities trading activities, and there was a lack of effective and standardized constraints on securities trading. People engaged in securities investment activities relied solely on experience and intuition to decide on buying and selling targets and timing. Although people summarized various investment maxims from investment practices, such as "Don't put all your eggs in one basket," "When to trade is more important than what to trade," "Buy what others are selling and sell what others are buying," "Cut losses when necessary," and "You can make money in both bull and bear markets, but only timidly greedy people can never make money." These maxims still hold some guiding significance today, but they are merely empirical rules summarized by people and have not yet risen to a systematic investment theory.
Stage 2 is the formation stage of securities investment theory (late 19th century to the mid-20th century). During this stage, Western securities markets experienced a process of expansion, collapse, recovery, and renewed prosperity. The fluctuations in the securities markets had a severe impact on a country's economy, and governments in Western countries began to realize that the uncontrolled liberalization of the securities investment industry was highly destructive. They had to strictly regulate the market order of securities investment. Governments around the world formulated a series of laws.
Stage 3 is the mature stage of Western investment theory development. After long-term accumulation of experience and knowledge, as well as the dedicated research of numerous experts and scholars, a profound scientific revolution occurred in Western investment circles starting in the 1950s. This scientific revolution in investment theory was first pioneered by Harry Markowitz of the United States with the development of portfolio selection theory. This theory had considerable explanatory power for a series of mysteries in the securities market and held significant scientific and practical value, thus sparking great interest among the investment theory community and the financial industry.