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News does not equal investment | 147 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
News does not equal investment
Authored by: jjs on Sunday, July 07 2013 @ 07:06 AM EDT
Investment (the "Economic" portion of the stock market) is
putting your money long-term into a company because you
believe in their product, management, etc. You're INVESTING
in the underlying company. Trade costs become very small,
because you don't anticipate taking the money out for years,
and then not because you want to reinvest, but to spend the
money (think retirement).

Best analogy I can think of for the "emotional" side, which
is what the current stock market is:

You're playing a game of poker in a casino that takes a
percent of every hand. Only the cards are dealt face up,
there's one hand dealt, and everyone is putting their bets
down on what they think will be the best hand to make of it.
Note that in this case, no economic development is
happening, it's all betting. Total money doesn't change.
However, a small amount is taken out of the pot every hand
for the house. The end result is whoever wins, everyone
else loses, and the winner gets less money than what
everyone put in. It's also possible over the long run (in
fact, probable) that everyone will lose, as all the money
will go to the house.

Those who invest long-term drive the economy. And don't
care about trading costs, because they don't trade, they
invest. Think Warren Buffet. Those who do frequent trading
in the long run cost the economy. Think day traders (what's
the best way to end up with a small fortune day trading?
start with a large fortune).

John Bogle spells this out with charts and graphs in his
many books. He also apparently doesn't think much of the
current financial community he's been a part of for decades.

---
(Note IANAL, I don't play one on TV, etc, consult a practicing attorney, etc,
etc)

[ Reply to This | Parent | # ]

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