Speculation and investment
Just a quick obvious thought. I wondered about the difference between investment and speculation.
My answer is investments try to create profits by providing goods and services while speculations try to create profits by appreciation - assuming the balance of supply and demand will be tighter in the future.
Specifically, thinking about those who support gold as an investment. I suppose you can invest in a gold mine, or a company that mines gold, but buying gold merely to hold and sell higher later is clearly speculation. You're betting future demand will be higher than current demand compared to supply. The value of gold is in possession, with nothing produced or changed along the way.
I guess it can work in the opposite direction - that currency itself will be devalued in the future, then you can at least hold something that won't lose value. It just seems pretty useless to me, to depend on a limited resource. It's value is controlled most by demand, and demand can far oughtweigh supply. If everyone looks to gold to save them, then it just becomes a pyramid scheme where those who buy-in early get the benefits, and the final sellers are the ones who pay - when the price bubble bursts.
Anyway, makes more sense to me to invest in property, something that can earn money while its held. I suppose again, like the recent boom of values shows, it can still become a bubble when there's more money chasing it than property to buy. I think probably now is a poor time to buy, and I hope prices can decline a little, even though that makes the recent bubble worse, as those who fall behind can't refinance under hardship.
It's a scary world, and I can dislike the reality as much as anyone - the idea that there's a load of investors (vultures) circling for the new kills for an easy meal. It's hard to like vultures even as the world needs them to clean up the messes.
Perhaps I could hate them more if it were possible for communities to invest in properties within. It is still a risky business.
WELL, just for an easy example when the vultures fail, Jim Kunstler has a great story - where sometimes NO ONE takes responsibility and the community pays in the end:
http://www.kunstler.com/Grunt_wrecked_house.html
When greed takes advantage of people I get angry, but when it leads to destruction and waste, I get furious, whether intentional or as a side effect. The argument "there's starving children in India" to not waste is not bad, even if its a desparate one offered by parents.
Those who waste what they have don't deserve my pity when they get what they deserve. It's just sad others must also suffer for it.
My answer is investments try to create profits by providing goods and services while speculations try to create profits by appreciation - assuming the balance of supply and demand will be tighter in the future.
Specifically, thinking about those who support gold as an investment. I suppose you can invest in a gold mine, or a company that mines gold, but buying gold merely to hold and sell higher later is clearly speculation. You're betting future demand will be higher than current demand compared to supply. The value of gold is in possession, with nothing produced or changed along the way.
I guess it can work in the opposite direction - that currency itself will be devalued in the future, then you can at least hold something that won't lose value. It just seems pretty useless to me, to depend on a limited resource. It's value is controlled most by demand, and demand can far oughtweigh supply. If everyone looks to gold to save them, then it just becomes a pyramid scheme where those who buy-in early get the benefits, and the final sellers are the ones who pay - when the price bubble bursts.
Anyway, makes more sense to me to invest in property, something that can earn money while its held. I suppose again, like the recent boom of values shows, it can still become a bubble when there's more money chasing it than property to buy. I think probably now is a poor time to buy, and I hope prices can decline a little, even though that makes the recent bubble worse, as those who fall behind can't refinance under hardship.
It's a scary world, and I can dislike the reality as much as anyone - the idea that there's a load of investors (vultures) circling for the new kills for an easy meal. It's hard to like vultures even as the world needs them to clean up the messes.
Perhaps I could hate them more if it were possible for communities to invest in properties within. It is still a risky business.
WELL, just for an easy example when the vultures fail, Jim Kunstler has a great story - where sometimes NO ONE takes responsibility and the community pays in the end:
http://www.kunstler.com/Grunt_wrecked_house.html
When greed takes advantage of people I get angry, but when it leads to destruction and waste, I get furious, whether intentional or as a side effect. The argument "there's starving children in India" to not waste is not bad, even if its a desparate one offered by parents.
Those who waste what they have don't deserve my pity when they get what they deserve. It's just sad others must also suffer for it.
posted by Ares Olympus at 10:58 PM
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