What is an investment?

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Investing is generally the use of money in the hope of making more money or committing money in order to earn a financial return. Many are in fact getting hyped by the word “investment” and they thought when they put their money to Mutual Funds or Stocks and so on–makes them invested~already.

But why do we have to ask this question? What is an “investment”? Does an “investment” can become a “not investment”? Well the answer is short, yes.


From investorguide.com: What is the Difference Between Gambling and Investing?


For some people who might disagree with me, here’s why. Buying stocks based on “hot tips”, trading frequently by following the gyrations of the market, and holding on to certain stocks based on pure sentiment is not investing, it’s “gambling”. You are betting on an uncertain outcome, taking risks in the hope of gaining an advantage or a benefit in the future. The essence of true investing is buying into companies behind the stock and not just the stock itself. This means that you carefully research or refer to research/es of reliable institution/s on the fundamentals of the company, buy it at a good price, and hold it for a meaningful period (typically a few years, unless the reasons you bought the stock in the first place are not valid anymore.)

But the stock market is uncertain, is it gambling? Let’s consider the flipping of a coin. There is an equal chance (or probability) of “heads” or “tails.” That’s gambling. But what if the coin were biased? In other words, what if the coin were weighted such that it had a much higher chance of showing us “heads”? Now the coin flipping is no longer random. With stocks, when you buy companies with good fundamentals at attractive prices, the probability that they will grow and produce good returns on your investment is not random. As Warren Buffett once said, “Risk comes from not knowing what you are doing.”—and this applies to all investment instruments.

Investing is based on skill and requires the use of a system based on research, while gambling is based on luck and emotions. Investing is a continuous process; gambling is an immediate event or series of events. In investing, the odds are in your favor; in gambling, the odds are against you.


Read also: Financial Fitness Tips


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