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.
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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