Stocks as an Investment

“Stocks give you an ownership share in a business.”

Common stock is a virtually painless way for a company to obtain large amounts of money very quickly. What you get in return is a lottery ticket. As the company does well, the lottery pool grows larger. As the company does poorly, the lottery pool shrinks.

It’s the strangest lottery ticket in the world, however, because the lottery is never drawn. You never get your money back from the company. You can’t call your stock due, like a loan. You can’t use it to obtain an office chair or a water cooler. You can’t use it to get an interview with the CEO — or even his/her receptionist.

The only thing you can do with a share of stock is to sell it (on the stock market) to someone else. He’ll buy it from you for one reason and only one reason: he thinks that sometime later, he’ll find another sucker just like himself who will buy it at a higher price than he paid for it. A stock share is a collectible, like a Barbie doll or a Franklin Mint coin. Its value is a pure speculation, not in the company it represents, but in the mindset of the other people buying and selling shares of stock. Players in the market look at company earnings, quarterly statements, and statistics, but this is all merely an attempt to gauge the mood of the other buyers.

When you buy stock, you are “investing” in a financial mood. Nothing more.

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