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This is one thing that frustrates me about investing in the stock market. The idea of calling trading "investing" feels so inaccurate. I didn't invest in your f

This is one thing that frustrates me about investing in the stock market. The idea of calling trading "investing" feels so inaccurate. I didn't invest in your fortune 500 company, I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. I wish investing was more like selling small corporate loans. I'll give Amazon $50 today if they pay me $100 in 10 years. Sounds great to me, take my money, do something with it, and pay me back. That's investing. I've grown much more comfortable investing in real estate as a result of this. When I invest in something I want to see how that investment was used, how it helped, and get returns based on how successful my ideas were. If I renovate a house or invest in my buddy's business, I get exactly that. It may fail, but at least my money mattered and I saw what it did to help. When I invest in the stock market I get none of this.

ISL 8y ago
Sounds like the bond market is right up your alley; that's how bonds work. (N.B. read first, invest later.) The thesis above also neglects dividend investing, where you buy a share of Ford Motor Company from someone for ~$9, and as long as Ford can do so, they'll probably give you $0.15 every quarter.
taurath 8y ago
>I wish investing was more like selling small corporate loans. I'll give Amazon $50 today if they pay me $100 in 10 years. Sounds great to me, take my money, do something with it, and pay me back. That’s a bond. Corporations do issue bonds but it’s just one way to invest, and generally you’re just betting they’ll pay their debt to you (and you’ll tend to get less over time but it’s more guaranteed). With a stock you’re betting that the value of the company will increase over time and you get paid as it increases in size and income.
- eldavido 8y ago
  This is basically Warren Buffett's conception of a stock: a bond with a variable interest rate. It gets easier when you think of a share as a fractional claim on a cashflow (profits - what's "left over"). Bondholders are generally promised a specific amount upfront. Stockholders get what's left over -- the amount of that is anyone's guess. It gets pretty abstracted when you start talking about firms that don't pay out profits but the basic idea is sound.
asdfasgasdgasdg 8y ago
I don't agree. In a farming village centuries ago, a man bought a second hoe from an estate sale. He would go on to lend it to others who needed a hoe, and charge rent for the use of that hoe. Over the seasons, his hoe brought him good rent, but then it came time to sell it. Because many of the hoes in town had been made by the blacksmith's apprentice, several had broken over the years, and the old master blacksmith's arthritis had prevented him from making new ones. But our hero's was one of the few crafted by the master, so over the intervening time, and with careful maintenance, it had actually appreciated as an asset, in addition to the investment income it generated. This was unquestionably an investment on his part, in the traditional sense of the word. Our hero bought a productive asset and earned returns from that asset. It was nice that it also appreciated, but that's not necessarily what he bought it for. Or maybe he did. It doesn't fundamentally change the nature of his effort. Buying a stock is very much like that, with lower transaction costs and risks. Only the productive asset you're buying is not a physical one, but a legal one and social one. Also, you can buy corporate bonds. They don't pay shit because everyone wants a safe investment like what you're describing, and money is real cheap right now.
- eldavido 8y ago
  I see your point. You are correct in that there is no net new creation of equity capital in a secondary market trade. I look at it this way: there is a fixed amount of equity capital floating in the world at any given moment. At any point in time, someone has foregone consumption (decided to forego eating a pizza today), at some point in the past (distant or recent) in order to own a piece of that equity. Also keep in mind companies issue and retire equity on a more or less ongoing basis through employee stock grants and buybacks. So it really is a question of how much you want cash vs. shares of stock, and how that tradeoff works for others.
  - Godel_unicode 8y ago
    > there is a fixed amount of equity capital floating in the world at any given moment This is absolutely not the case.
baddox 8y ago
> I didn't invest in your fortune 500 company, I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. You just provided a (simplistic) definition of investing. I don’t see how that supports your claim that it’s not investing. All investing is just buying something that you think will be worth more over time. You buy a share of a company because you think the share will be worth more. You buy a bond because you think the issuer will be able to pay back the debt and interest. I can’t think of another definition of “investing.”
- eldavido 8y ago
  Not necessarily. A more general, yet more precise definition of investing might be, "Trading cashflows in a way that both parties find beneficial". Those cashflows may be subject to (negotiated) differences in timing, risk of nonpayment, intrinsic uncertainty (most equities fall into this bucket), etc. But at bottom it's all just cashflow. This is a useful lesson to generalize about finance, in the larger sense. Don't think about "worth more". Just think of it as timed cashflows. Negative when you buy, positive when you sell or receive a dividend.
deleted 8y ago
[deleted]
C1sc0cat 8y ago
Trading is when your speculating day or week to week. Investing is saying "ok big warehouses for distribution companies like amazon is a growing market therefore I will buy shares in a company that owns warehouses (BBOX) - this is sort of how Warren Buffet works
- throwawaymath 8y ago
  Eh, that distinction is ambiguous at best. There's a far larger overlap between speculation and investing. It would be more accurate to say that value investing is different from speculation - but even then, speculation is fundamentally inseparable from investing.
  - sinsterizme 8y ago
    Perhaps value investing is the definition for "investing". And the rest speculation
  - C1sc0cat 8y ago
    Ok but it is Benjamin Grahams definition - he was Warren Buffets mentor BTW
pmart123 8y ago
It might be helpful to take a look at what Graham called a “Net-Net.” If other investors perpetually undervalue your investment in a company that produces earnings, eventually the cash generated from those earnings could be given to shareholders as a dividend, etc. In an extreme example, imagine a company that the market values at $1B with $1B in assets that produces $1B in earnings. The following year, the company would have an extra billion on its balance sheet even if the share price didn’t change.
lmm 8y ago
> I didn't invest in your fortune 500 company, I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. The stock price does connect to the real world though. If a company is deciding whether to expand, or bring in new management, or exit an industry, their stock price will certainly factor into that. If they're looking to buy another company, or another company is looking to buy them, the stock price is even more relevant.
triangleman 8y ago
> I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. Ultimately you are betting that the company will one day buy back stock, be acquired, issue dividends, etc.

ISL 8y ago

Sounds like the bond market is right up your alley; that's how bonds work. (N.B. read first, invest later.) The thesis above also neglects dividend investing, where you buy a share of Ford Motor Company from someone for ~$9, and as long as Ford can do so, they'll probably give you $0.15 every quarter.

taurath 8y ago

>I wish investing was more like selling small corporate loans. I'll give Amazon $50 today if they pay me $100 in 10 years. Sounds great to me, take my money, do something with it, and pay me back. That’s a bond. Corporations do issue bonds but it’s just one way to invest, and generally you’re just betting they’ll pay their debt to you (and you’ll tend to get less over time but it’s more guaranteed). With a stock you’re betting that the value of the company will increase over time and you get paid as it increases in size and income.

eldavido 8y ago
This is basically Warren Buffett's conception of a stock: a bond with a variable interest rate. It gets easier when you think of a share as a fractional claim on a cashflow (profits - what's "left over"). Bondholders are generally promised a specific amount upfront. Stockholders get what's left over -- the amount of that is anyone's guess. It gets pretty abstracted when you start talking about firms that don't pay out profits but the basic idea is sound.

asdfasgasdgasdg 8y ago

I don't agree. In a farming village centuries ago, a man bought a second hoe from an estate sale. He would go on to lend it to others who needed a hoe, and charge rent for the use of that hoe. Over the seasons, his hoe brought him good rent, but then it came time to sell it. Because many of the hoes in town had been made by the blacksmith's apprentice, several had broken over the years, and the old master blacksmith's arthritis had prevented him from making new ones. But our hero's was one of the few crafted by the master, so over the intervening time, and with careful maintenance, it had actually appreciated as an asset, in addition to the investment income it generated. This was unquestionably an investment on his part, in the traditional sense of the word. Our hero bought a productive asset and earned returns from that asset. It was nice that it also appreciated, but that's not necessarily what he bought it for. Or maybe he did. It doesn't fundamentally change the nature of his effort. Buying a stock is very much like that, with lower transaction costs and risks. Only the productive asset you're buying is not a physical one, but a legal one and social one. Also, you can buy corporate bonds. They don't pay shit because everyone wants a safe investment like what you're describing, and money is real cheap right now.

eldavido 8y ago
I see your point. You are correct in that there is no net new creation of equity capital in a secondary market trade. I look at it this way: there is a fixed amount of equity capital floating in the world at any given moment. At any point in time, someone has foregone consumption (decided to forego eating a pizza today), at some point in the past (distant or recent) in order to own a piece of that equity. Also keep in mind companies issue and retire equity on a more or less ongoing basis through employee stock grants and buybacks. So it really is a question of how much you want cash vs. shares of stock, and how that tradeoff works for others.
- Godel_unicode 8y ago
  > there is a fixed amount of equity capital floating in the world at any given moment This is absolutely not the case.

baddox 8y ago

> I didn't invest in your fortune 500 company, I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. You just provided a (simplistic) definition of investing. I don’t see how that supports your claim that it’s not investing. All investing is just buying something that you think will be worth more over time. You buy a share of a company because you think the share will be worth more. You buy a bond because you think the issuer will be able to pay back the debt and interest. I can’t think of another definition of “investing.”

eldavido 8y ago
Not necessarily. A more general, yet more precise definition of investing might be, "Trading cashflows in a way that both parties find beneficial". Those cashflows may be subject to (negotiated) differences in timing, risk of nonpayment, intrinsic uncertainty (most equities fall into this bucket), etc. But at bottom it's all just cashflow. This is a useful lesson to generalize about finance, in the larger sense. Don't think about "worth more". Just think of it as timed cashflows. Negative when you buy, positive when you sell or receive a dividend.

deleted 8y ago

[deleted]

C1sc0cat 8y ago

Trading is when your speculating day or week to week. Investing is saying "ok big warehouses for distribution companies like amazon is a growing market therefore I will buy shares in a company that owns warehouses (BBOX) - this is sort of how Warren Buffet works

throwawaymath 8y ago
Eh, that distinction is ambiguous at best. There's a far larger overlap between speculation and investing. It would be more accurate to say that value investing is different from speculation - but even then, speculation is fundamentally inseparable from investing.
- sinsterizme 8y ago
  Perhaps value investing is the definition for "investing". And the rest speculation
- C1sc0cat 8y ago
  Ok but it is Benjamin Grahams definition - he was Warren Buffets mentor BTW

pmart123 8y ago

It might be helpful to take a look at what Graham called a “Net-Net.” If other investors perpetually undervalue your investment in a company that produces earnings, eventually the cash generated from those earnings could be given to shareholders as a dividend, etc. In an extreme example, imagine a company that the market values at $1B with $1B in assets that produces $1B in earnings. The following year, the company would have an extra billion on its balance sheet even if the share price didn’t change.

lmm 8y ago

> I didn't invest in your fortune 500 company, I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. The stock price does connect to the real world though. If a company is deciding whether to expand, or bring in new management, or exit an industry, their stock price will certainly factor into that. If they're looking to buy another company, or another company is looking to buy them, the stock price is even more relevant.

triangleman 8y ago

> I bet on the idea that other people down the line would bet on the same company but that they'd bet even harder. Ultimately you are betting that the company will one day buy back stock, be acquired, issue dividends, etc.