Monday, April 29, 2013

Is it Investing or Speculating?

Don't Ask YourBroker

Speculating on bubbles
 ~ The word "invest" has become debased.

We hear so much about the supposed importance of investor confidence and about the need for low taxes on investors, and all because, the pundits aver, we need investors to invest so that the economy can grow and solve all of our problems.


Sure, an investor may be someone who commits capital in order to realize a financial return, but I think it is a stretch to confuse most of what passes for investment as somehow aiding the economy.

When companies invest in plant and equipment they commit capital, can take more orders, employ more machinery, manufacture more stuff, and perhaps, hire more people. That's investment that creates a rising tide for all boats.

But when "investors" buy an index fund or an interest rate swap, they are doing none of those things. Instead, they are placing a bet by making a paper transaction with someone else. One is a buyer and one is a seller. If one buys 100 shares of Microsoft, the software giant never sees a penny of it. Brokers and middlemen pick up a commission, but the economy doesn't much change. One side of the transaction wins and the other loses. It's not investing, it's speculating.

If you are an investor, and want a good return, and perhaps desire to really do what politicians always bloviate about—stimulating growth—then stop feeding Wall Street fees through feckless financial swaps, and go fund a startup. Your investment (a real investment!) will directly result in people being hired, equipment being purchased, and generally, growth in the economy.

Now that's investment!

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