Comments on: Investing Basics: What Is an Investment?

By: The Carnival of Personal Finance CCXLIV – The Fiscally Irresponsible TV Characters Edition « Len Penzo dot Com

Tue, 11 Jan 2011 22:02:27 +0000

[...] Williams from Provident Planning presents Investing Basics: What Is an Investment?, and says, “If you’re new to investing, the first thing you need to learn is what an [...]

By: Are We Investing or Speculating in Growth Stocks? « OutOfYourRut.com

Are We Investing or Speculating in Growth Stocks? « OutOfYourRut.com — Fri, 19 Feb 2010 02:32:12 +0000

[...] Investing Basics: What Is an Investment? Paul Williams at Provident Planning introduces the concept of familiarity blindness, a state in [...]

By: Kevin@OutOfYourRut

Kevin@OutOfYourRut — Wed, 10 Feb 2010 21:29:47 +0000

There’s merit in what you’re saying of course, but at the same time, it’s probably best that the average person doesn’t commit too much of his or her funds to that expectation, as if it’s success is a given.

A lot of people go into the stock market without being fully aware of the risks they’re taking on. When the market’s rising everyone’s convinced it’s working as it should, but it’s often only when it slides in a major way that we begin to ask “what was I thinking?”

The first rule of investing is not to lose money!
.-= Kevin@OutOfYourRut´s last blog ..Blue Collar Jobs Can’t be Moved Offshore =-.

By: Paul Williams

Paul Williams — Wed, 10 Feb 2010 20:52:48 +0000

That’s a good distinction, Kevin. But I also think that the expectation of growth from stocks is not unreasonable (i.e., speculating). Prices for stocks are based in part on the future revenue streams we expect from them (dividends). But we can reasonably expect many stocks/companies to increase in value as well. That’s why stocks aren’t priced solely based on their current or future dividends.

With that said, many investors do overestimate their ability to pick stocks (or other assets) that will increase in value, which is just speculation.

By: Kevin@OutOfYourRut

Kevin@OutOfYourRut — Wed, 10 Feb 2010 19:36:42 +0000

I had a professor in college (for an investment course) who I didn’t particularly like, but one thing he taught that never left me is the necessity of differentiating between investing and speculating.

He said you’re investing when you’re buying into a revenue stream; when you’re buying a security or tangible asset in the hopes that it will be worth more in the future, you’re speculating.

I think that’s a useful distinction, and probably points toward the need for serious investors to put the bulk of their money into income generating assets like dividend paying stocks, bonds and CDs, and putting only a small amount into chasing what we like to call “growth assets”, but are more likely blatant speculations.

After the stock market booms of the 80s and 90s it seems a lot of good people are having trouble identifying the difference, and maybe that’s why so many got hit so hard when the markets crashed twice since 2000.
.-= Kevin@OutOfYourRut´s last blog ..Blue Collar Jobs Can’t be Moved Offshore =-.