Wednesday, November 14, 2012

Investing Isn't Gambling

I'd like to lay to rest the idea that investing in companies through stock markets is "gambling" or speculation. The reason to invest money in any investment vehicle is to get a return on ones investment. You can do this at any bank with a savings account, money market or certificate of deposit but the returns aren't as high as stocks, bonds, owning a business or real estate

Savings accounts should be FDIC insured so ones risk is extremely minimal in loosing all of ones funds. Government savings bonds are backed by the US government and are a little riskier as interest rates can fluctuate with long term bonds but have little risk in loosing ones principle. The problem with these prior mentioned investments is that the return you get on the initial investment is basically slim to none with inflation factored in.
So where can one look to get huge returns on investment? There is owning or starting a private company, investing in property/owning property, investing in companies through stock markets, high yield bonds like junk bonds or company bonds. As far as

I know the only vehicles that have unlimited return potential are owning a company and investing in companies through the stock market. Are these gambling? If gambling is defined as the voluntary risking of a sum of money on the outcome of a game or other event then no. Companies are not a game or event. Investing in a bond has risk but taking risk is not gambling. While trying to decipher the two I just had an epiphany of one of the best explanations I have read on the matter by Warren Buffett who proves that with the approach of investing in companies by exploiting price and value large returns have been made CONSISTENTLY and evidence shown in this link. loads slowly.
Buffetts essay

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