Investment

I will write something about my point of view on Investment and what kind of Investment I did, do and will do here.

What is Investment? It is defined in Oxford English Dictionary as "a thing worth buying because it may be profitable or useful in the future".

BUT my perception is "a thing worth doing because it can be useful right now and may be profitable in the future". I always do investment according to my perception. In another words, I do only things what can give me something right now and profitable or useful in the future.

The perception comes from my education, career and experience. 

I am really eager to know what the word "future" means. Is it tomorrow, next month, next year or next ten years? If you know the exact time frame, it's ok. If not, ....

Some people buy something because they think or expect the price will goes up in future. So, when will the price goes up? tomorrow, next month, next year? To make it more clear, let's say, you buy a house today because you think or expect that the price will go up in future. If you buy the house today with $100,000, and you need to wait ten years to become the price $200,000, what will happen if you die during ten years? Moreover, you will get only $200,000, not two houses. The price of the house is just inflated. You are not getting twice the wealth. You have only one house. If you just compare with another person who put his money, the same amount $100,000, under his pillow or a piggy bank, you get twice.

Instead you should buy an instrument which can give you money daily, monthly, quarterly or annually. It is better if the price of the instrument goes up. If not, the price of the instrument should not goes down in a depreciation manner unless you can claim someone for the depreciation. The instrument can be of any. It can be real estate, e.g. a house,  financial product, e.g. a bond or a stock, or any as long as the instrument can be useful right now and profitable in future.

If you have any interest, please take a look at my Past, Present and Future Investments.

People think themselves as investors when they have some level of involvement in investment instruments. For example, if someone buys a house or stock or bond, they think that they have made investment. 

Is it an investment?

Many people are buying and selling the investment instruments. I categorize these people into three categories:

  • Traders
  • Speculators
  • Investors

Traders buy the instrument on the market. When  traders have the market to sell the instrument back at a margin of profit, they buy it.

Speculators buy the instrument on the future price of the instrument. When speculators think the price of the instrument will go up, they buy it.

Investors buy the value of the instrument instead of the price. Here, I like to explain a little about the difference between value and price. Price is what you need to pay to get something. Value is the usefulness or worthness of the thing. Price can fluctuate time to time but value cannot fluctuate over some period of time. For easier understanding, the price of a stock is changing time to time at the market. You can see the stock quote of the newspaper and see that the price of the stock of company XYZ is in the range of $xxx.xx - $yyy.yy. But the companies business is not ranging from $xxx.xx - $yyy.yy in one day. If we make an exact valuation of the company XYZ, we may find that the price of its stock is $zzz.zz, the intrinsic value of the stock, which may be more than $xxx.xx or less than $yyy.yy or between $xxx.xx and $yyy.yy. So, when you buy the XYZ stock, you may need to pay $aaa.aa which may be more than $zzz.zz or less than $zzz.zz. If $aaa.aa is more than $zzz.zz, you are buying at a price higher than the intrinsic value. If $aaa.aa is less than $zzz.zz, you are buying at a discount price.

My perception is that investment is like riding a bicycle. A person cannot learn riding a bicycle without practicing himself/herself. No body can learn investment in a class. If a person has learnt from the investment in a class without any practical experience, it will be like riding a bicycle in a classroom. The person will mixed up the investment with trading and speculating. (That is my realexperience)


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