Buying stock is actually "Saving" not "Investing"!!

[baobie]

We used to think that buying stock at the stock market as investing. Financial magazine say so, your brokers say so, and everyone says so. But I want to share with you an idea that hit me really hard.

The idea is from Cullen Roche's book "Pragmatic Capitalism". While I don't agree with all the viewpoints of the book, the author made a very clear distinction between "Saving" and "Investing".

When we are buying stock on the secondary stock market, we are not investing. We are only allocating our saving into stock. The REAL INVESTMENT had been made when the stock is issued by the corporation and received the money from the first investor. Investment means allocating resource for the future productive means. Buying stocks on secondary market, the underlying corporation of the stocks do not receive any new funding to increase its future productive means. The stock merely changed hand from the previous stockholder to you.

But why people still calling buying stocks on the secondary market an act of "Investing"? May be Wall Street think the word "Saving" is not as sexy as "Investing". So guys, investment is to acquire/organize the factors of production to satisfy a market demand. Not sitting in front of your computer trading stock.

 

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[bangL]

We used to think that buying stock at the stock market as investing. Financial magazine say so, your brokers say so, and everyone says so. But I want to share with you an idea that hit me really hard.

The idea is from Cullen Roche's book "Pragmatic Capitalism". While I don't agree with all the viewpoints of the book, the author made a very clear distinction between "Saving" and "Investing".

When we are buying stock on the secondary stock market, we are not investing. We are only allocating our saving into stock. The REAL INVESTMENT had been made when the stock is issued by the corporation and received the money from the first investor. Investment means allocating resource for the future productive means. Buying stocks on secondary market, the underlying corporation of the stocks do not receive any new funding to increase its future productive means. The stock merely changed hand from the previous stockholder to you.

But why people still calling buying stocks on the secondary market an act of "Investing"? May be Wall Street think the word "Saving" is not as sexy as "Investing". So guys, investment is to acquire/organize the factors of production to satisfy a market demand. Not sitting in front of your computer trading stock.

That's what MJ been trying to tell in his books. I personally was planning to start trading stocks because for the longest time, everyone in my life does it. But now, I rather use the time to build new skills for the REAL investment. Thanks for the heads up guys!

 

[Andreas Thiel]

Wait, none of that sounds right.

The value of shares changes as the value of the company changes. The marketcap is based on the stock price.
The stock price changes as the fundamentals / financials of the companies change.
Companies can leverage the stock price to raise money. You own a part of the company. Of course owning equity is an investment.
Starting your own company might be the better investment, but buying equity is nothing like building up a pile of cash.

 

[Speed112]

Wait, none of that sounds right.

The value of shares changes as the value of the company changes. The marketcap is based on the stock price.
The stock price changes as the fundamentals / financials of the companies change.
Companies can leverage the stock price to raise money. You own a part of the company. Of course owning equity is an investment.
Starting your own company might be the better investment, but buying equity is nothing like building up a pile of cash.

That's true. I think the more important distinction, however, and why the op isn't that far off the mark, is the aspect of control.

Of course, when you lock resources up in a venture of any kind, even commodities or consumables, that is an investment. When you buy food you are investing in caloric energy that you can transform into work and other things. Saying stocks are not an investment is not quite correct.

However, they are usually not an investment you can actively or directly control. You are at the whims of market influences and the decisions of the majority stakeholders and decision-makers in said company. In that regard, you can see it as just "saving".

Where the opportunity comes is in the possibility for arbitrage, and RoI from the bet that said stock will perform better than other possible things you could do with your money. In that regard, it's most definitely "investing".

I would go as far as saying that even hoarding a pile of cash is equivalent to being invested in fiat, in the currency you are hoarding, as there are opportunities for arbitrage in Forex and liquidity has its own value.

So, saving and investing are just facets of the same thing.

I don't see much difference between investing in a stock and investing in a house or any other asset. Is buying a house saving money?

 

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[Guest-5ty5s4]

That's true. I think the more important distinction, however, and why the op isn't that far off the mark, is the aspect of control.

Of course, when you lock resources up in a venture of any kind, even commodities or consumables, that is an investment. When you buy food you are investing in caloric energy that you can transform into work and other things. Saying stocks are not an investment is not quite correct.

However, they are usually not an investment you can actively or directly control. You are at the whims of market influences and the decisions of the majority stakeholders and decision-makers in said company. In that regard, you can see it as just "saving".

Where the opportunity comes is in the possibility for arbitrage, and RoI from the bet that said stock will perform better than other possible things you could do with your money. In that regard, it's most definitely "investing".

I would go as far as saying that even hoarding a pile of cash is equivalent to being invested in fiat, in the currency you are hoarding, as there are opportunities for arbitrage in Forex and liquidity has its own value.

So, saving and investing are just facets of the same thing.

I don't see much difference between investing in a stock and investing in a house or any other asset. Is buying a house saving money?

The biggest difference is between stocks that pay dividends and stocks that don’t pay dividends. The cash flow makes it an investment. Everything else is speculation.

But this form of investing is still not the top way to generate income or wealth because someone else controls it, like you said.

For instance, in a rental property you get to force value by adding new paint, remodeling the kitchen, raising rent, etc.

With a great dividend stock, you are completely dependent on the performance of someone else’s company, AND their decision on how much profit to pay to the investors.

Consumers pay prices, fastlaners set prices. Owning stocks is kind of in between.

TLDR: Stocks are investing. But sometimes people buy stock and they are gambling instead. It's really the way you do it, that determines if you are an investor...or a gambler. A rookie or a pro.

 

[100k]

Semantics.
What's your point that we should only "invest" in startups so we can realize great ROI when they get listed on the stonk market?

There is a lot of money in doing that... that's why the elite lobbied for laws to keep out people like us... it wasn't until Obama came along and made the JOBS act that we could even invest even $2k into a startup.

BUT, no major requirements needed to gamble your life savings in Vegas... if you wanna do that, you're free.

You want to take out 6 figure loans to get a useless degree... no problem, the government will gladly throw money at you to do that.

But if you want to get $100k and setup a business or buy one... hell nawwww. We gotz to see your credit, business plan, criminal record and equity.

Yeah..... something smells fishy here, mister Free Market... mister Land of the Free.

 

[ljean]

When we are buying stock on the secondary stock market, we are not investing. We are only allocating our saving into stock.

This is non-sensical, sorry.

If it bears the risk of loss with the chance of making a gain it is an investment.

 

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[Fox]

But why people still calling buying stocks on the secondary market an act of "Investing"?

Cause there is a level of risk.
Some stocks might behave like savings but they arent savings.

If you view investing as saving then you are making it seem mentally safer than it is.
Stocks can go up and down with much more volatility than savings would.

Going meta on this thread I don't even see the point of trying to combine definitions like this - it isn't going to help you in business to massively generalize different concepts like savings and stocks into one word.

 

[RussRussman18]

It is investing if the returns outpace inflation/increased cost of living. Which most funds/stocks currently don't

 

[Speed112]

It is investing if the returns outpace inflation/increased cost of living. Which most funds/stocks currently don't

An investment that doesn't bring returns and bankrupts you is still an investment. A poor investment, but one nonetheless. Rate of returns doesn't make things an investment, they just tell you if you should prefer it over some other investment.

 

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[Johnny boy]

Buying stocks is investing.

Investing doesn’t mean “a great idea for what to do with your money”

It means to expend money and hope for a profit.

It’s just way smarter to grow a business if you have a hundred grand rather than buy apple shares. (Assuming you’re not dumb and won’t just blow the hundred grand lol)

Now…with that said…go make some money don’t worry about definitions like this.

 

[Kevin88660]

We used to think that buying stock at the stock market as investing. Financial magazine say so, your brokers say so, and everyone says so. But I want to share with you an idea that hit me really hard.

The idea is from Cullen Roche's book "Pragmatic Capitalism". While I don't agree with all the viewpoints of the book, the author made a very clear distinction between "Saving" and "Investing".

When we are buying stock on the secondary stock market, we are not investing. We are only allocating our saving into stock. The REAL INVESTMENT had been made when the stock is issued by the corporation and received the money from the first investor. Investment means allocating resource for the future productive means. Buying stocks on secondary market, the underlying corporation of the stocks do not receive any new funding to increase its future productive means. The stock merely changed hand from the previous stockholder to you.

But why people still calling buying stocks on the secondary market an act of "Investing"? May be Wall Street think the word "Saving" is not as sexy as "Investing". So guys, investment is to acquire/organize the factors of production to satisfy a market demand. Not sitting in front of your computer trading stock.

Yes I agree. It is a mix of saving and speculating.

Investing in the classical sense is capital expenditure for business launch or growth. In 19th century it is about getting the money for building a factory that produce stuff.

So if you participate in primary market founding start-up you are also doing investing, in a classical sense.

Stock investing today that happening on exchange is merely exchanging ownership between paper holders.

It is not even under your own name directly. Your broker holds it for you.

Such buy sell activity had negligible impact on the operation of the underlying business.

I think it comes down to the bias that investing is a sexy name and people do not want to call themselves speculators.

But you cannot avoid speculation in life. When you start a business you are to an extend betting on yourself, and the industry potential. You cannot avoid that.

To be successful you have to make sizable bet in life and content with the consequences of losing.

 

[biophase]

We used to think that buying stock at the stock market as investing. Financial magazine say so, your brokers say so, and everyone says so. But I want to share with you an idea that hit me really hard.

The idea is from Cullen Roche's book "Pragmatic Capitalism". While I don't agree with all the viewpoints of the book, the author made a very clear distinction between "Saving" and "Investing".

When we are buying stock on the secondary stock market, we are not investing. We are only allocating our saving into stock. The REAL INVESTMENT had been made when the stock is issued by the corporation and received the money from the first investor. Investment means allocating resource for the future productive means. Buying stocks on secondary market, the underlying corporation of the stocks do not receive any new funding to increase its future productive means. The stock merely changed hand from the previous stockholder to you.

But why people still calling buying stocks on the secondary market an act of "Investing"? May be Wall Street think the word "Saving" is not as sexy as "Investing". So guys, investment is to acquire/organize the factors of production to satisfy a market demand. Not sitting in front of your computer trading stock.

So investing only happens when you are the first one to purchase the asset?

If I put in money to help someone build their company, it’s investing. But the person who buys my shares is saving?

 

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[biophase]

But actually if you put $100 in a savings account that makes 0.1%, is that saving or investing?

Does the return amount matter? What if the savings account paid 10% interest? Are you now saving or investing? Is a CD/bond paying 5% saving or investing?

I’d actually argue that that is investing. So it’s actually the opposite, saving can be investing. Investing cannot be savings.

 

[MJ DeMarco]

Seems like an odd thing to debate... if you get an answer to your liking, will you change how you invest and/or save money?

 

[socaldude]

I don’t see how this is semantically equivalent. Two very different definitions.

 

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[nothingness]

Personally I see it more like gambling.

Most stock on the market is common stock so even if you own 100% of it you have zero to little control over the company. Furthermore unless you register your stock, it's not actually yours, it's held by your brokers house. In fact quite often they make money on it without telling you via selling covered calls or puts on the stock you "own". EVEN further than this it's still owned by Cede&Co, they just keep a ledger of what everyone owns, just like the money in your bank account, if you have enough of it, can't be withdrawn into actual bank notes.

So you are "investing" in a company you have no control over. Because you have no control, you can only speculate that it's going to go up or down in value. This is why index funds are so popular, because an average of 500 companies (S&P 500) has increased ~8-10% on average over the decades, which mitigates risk. It's also well known that outside of clown world crazy bull market like the last decade, an index beats individual stocks most of the time.

Lots of people have made tons of money this decade, but where were they in the last bear market? I feel like, all these Youtubers and social media people making thousands a week NOW will lose it all in the next bear cycle. Just like gamblers.

Buying indexes is saving, for sure, given the long term track record. But buying $TSLA? It could drop to zero tomorrow and never come back. That's neither saving nor investing, that's gambling. Of course there's a chance all 500 companies in the S&P 500 could drop to zero tomorrow and never come back, but the chances of that compared to one volatile tech stock with a CEO known for making stupid tweets?

For me it's gambling so I don't do it whatever the gains. Instead when I want to gamble I just buy a lottery ticket when I fancy it. £2.50 for the chance to win £110M vs £largepercentofmynetworth for a chance of making a 10% return and an equal chance of losing it all.

 

[Speed112]

For me it's gambling so I don't do it whatever the gains

So are you not gambling when you hold GBP? Isn't that a bet (hope) that GBP will perform better than productive companies relative to the market?

Would you rather have $100k in cash ahead of Brexit and through Covid while the money printers go BRRR or exchange that currency into something which can grow in value rather than inevitably crash?

Just because there is risk and uncertainty (there always is in everything) doesn't mean it's gambling, and even if it was gambling, it wouldn't mean it's not investing.

Anyway. This is such a silly semantic debate that we've been baited in.

Investing means allocation of resources. That's it. As long as you have resources, you allocate them somehow, so you're constantly investing and divesting every single day. You're invested in your job, in your computer, in your geographical location.

When you wash your hands you're investing energy and time into them and in exchange you minimize the risk of disease.

I think people are having a fundamental misunderstanding about what money is to get this weird understanding of investments, speculation, saving, or whatever other terms you want to use.

Discussing the terms is pointless. They have formal definitions. Look them up. Some random guy contradicting definitions because he had an epiphany that "wait a minute, a goose is actually just a big duck so I'm gonna call them all chicken now." is not a good enough reason to use them incorrectly or out of context.

Fiat currency is just a medium of exchange. It's not equivalent to value or energy. It's just what the market momentarily decided to use to facilitate transactions at some moment of time in some geographical location.

Repeat after me: Currency is not Money. There is an immense practical difference between fiduciary money and commodity money. And when it comes to USD, EUR, GBP, etc. they are investments that violate the commandment of control. You're always at risk of central planners deciding that your paper is invalid, locking up your bank accounts, devaluing the currency, etc.

Why the implicit trust of government currency and those who control it?

Why the default use of currency as the standard of value?

I would rather get paid in chicken (preferably duckicken) or rice. I can always turn those into a profitable exchange by creating value with my hands and brain.

So when I have 2 weeks worth of food stocked in my kitchen, am I saving? Or am I invested in my caloric security?

By purchasing stocks, you are foregoing the opportunity to purchase anything else. You are acting in the market and signaling that this is your preferred choice. You just prefer stocks over wheat or oil or cars or cash.

You can argue all you want that general stocks or index funds are not "real investing" because the returns are uncertain and maybe not there, but that's completely beside the point. Everything is uncertain and maybe not there, just to varying extents. Just because you earn dividends and have some cashflow doesn't mean it's a better investment. Just because you control the risk doesn't make that investment better either. All you're saying is that you, personally, prefer cashflow or control. That doesn't discredit some other person's preference who may have a completely different risk appetite and valuation of time.

You don't get to tell other people what they prefer.

So why are we even talking about this?

The difference between gambling and non-gambling is expected value. A lottery or slot machine will always have negative expected value so you will always lose in the long-run. The stock market is pretty messed up and there's a lot of corruption involved, but preferring a lottery over it suggests a complete misunderstanding of risk management and finance. As well as maybe a misplacement of the locus of control.

With all this being said... F*ck stocks. There are so many better things you can do with your time and resources, and the mass campaign promoting the stock market which has led to people being over-invested and over-leveraged in stocks, pushing companies to absurd valuations, is quite frustrating.

If you're going for a diversified passive investment portfolio for safe growth, you will want some stocks, you will want some fiat currency, you will want some crypto, and you'll want a whole bunch of other things including commodities, land, or whatever. The problem is people have 80% of their resources invested in the stock market and then believe it's a safe investment.

This fuels the boom which will clear out "the gamblers" in the bust.

It's not the stocks' fault. It's the overinvestment and golden-goose-chasing attitude that is incentivized by "conventional wisdom" and exploitative retirement plans, hedge funds, and financial advisors.

So can we have a more productive discussion about things that will actually maybe alter preferences, promote action and create value? Circlejerking around semantics doesn't seem like meeting the standards of this forum.

Thanks.

 

[nothingness]

Investing isn't just allocation. Investing is literally putting money somewhere with the idea of gaining from it. That is at least how everyone I have ever spoken to has understood investments. Or you invest in people, again with the expectation of a gain, not necessarily your gain.

You don't get to tell other people what they prefer.

I totally agree but, this is the case for everything so would make a forum discussion about anything pointless. You seem to have missed the "For me" from the start of my post.

The problem is people have 80% of their resources invested in the stock market and then believe it's a safe investment.

It is relatively safe if it's in the right place. Hence my comparison to (safe) indexes vs (not safe) individual tech stocks. An index is by design safer than holding cash because cash depreciates via inflation vs an index appreciating via growth and dividend.

So can we have a more productive discussion about things that will actually maybe alter preferences, promote action and create value? Circlejerking around semantics doesn't seem like meeting the standards of this forum.

This just comes across like "can the forum as a whole only speak about what my preferences are" which is pretty rude isn't it? You dismiss my post because it doesn't match your opinion. Nice.

Yet in regards to my post a person who just put cash into a bogleheads 3 fund is far more likely to still have their assets in 30 years than someone putting their assets into crypto, currency, and individual tech stocks. Surely this is promoting action and creating value too?

People don't like to admit that a boring index fund or dividend aristocracies can and historically have outperform their individual stock plays. People like to feel special, that they have the midas touch. In a crazy black swan bull market this is easy (and even then, people have lost a lot lately on the wrong plays), but in the long term, not so.

 

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[Speed112]

Investing isn't just allocation. ...

After the Anyway I was talking in general regarding the thread and topic at hand, not necessarily directed at you. Except for one additional phrase about gambling near the end. The op is baobie and the topic is whether buying stock (in general or any way) is saving instead of investing.

You're free to talk about whatever you want and you're welcome for it. I'm not dismissing your post, but I'm questioning the thesis of this entire thread that apparently is so controversial we're somehow having a debate over it. Seems like it was resolved from the first few posts, so I don't quite get it.

And I'm pretty sure we're talking about stocks in general as an investment vehicle, not one singular meme stock. But I agree with that final point.

As for the meaning of investing. It comes from Latin meaning to clothe. In + vest (such as vestment/clothing) and it refers to the act of engaging or endowing something for a particular purpose. More specifically, you are giving someone else control over your resources. That's what it means. A financial investment is adorning someone with the privilege of controlling your financial resources.

It doesn't have to lead to an expectation of positive returns, but generally is assumed so because why would someone invest with other expectations? But assumptions are bad and often wrong, because people can invest for all manner of reasons. Altruistically in charity, emotionally in their friends and family, out of spite or ideological fervor, or because going to the moon is a nice meme. Them having a different reason than you doesn't mean they are wrong, because preference is subjective.

Edit: Also if we use the formal definition of Investing (capital I) which in some cases does assume the expectation of profit in the definition itself, then we have to compare it with the same formal definition of Saving (capital S) from the same formal context, which specifically excludes the expectation of profit. That's the distinction. Since, that distinction is rejected in the premise of the thread, then obviously we're not talking about that specific formal context.