lending money vs investing/ buying shares of a business

[sushi]

I find that lending money to a business and investing in a business is just the same mindset

you want to lend to a safe business that can return the principal plus interest

investing in a business is just the same, you want to invest in a business that can yield a safe return and not go bankrupt and have cash problems

so if you are investor, just picture yourself to be like a bank, would you lend money to this X corporation given such data and financial performance. A good lender is someone who always gain more than what he lends out, just as a good investor.

Maybe my reasoning is wrong, so feel free to correct me

the rich billionaires in the past were always money lenders for some reason, like medici, fugger, rothschild.

 

[Cognisant]

A loan is different to investing, a loan has to be paid back regardless of how successful the business is or isn’t and the interest rate on the loan is a set percentage over time (set relative to inflation with a variable rate loan) and there’s limit on how long you have to repay it with the loan being repaid in instalments based on a schedule you must agree to before the loan is given. As a lender loaning out your money is a bit like having your cake and eating it too, it’s still your money you’re just letting someone else hold it for a while and they pay you for the privilege so you’re getting money for having money. That’s why rich people do it, when you have lots of money is the most expedient and least complicated way of both storing it and turning a profit from simply having money, it’s low return but also low risk and more importantly low effort.

Investing is a different game entirely, when you invest in a business you’re purchasing a stake in that business and whether you get a return at all is based on whether that business is successful or not and unfortunately most new businesses fail. On the other hand if the business is successful you’ve got a share of that success so you get a percentage of that business’s profits and some businesses pay dividends (giving money to their investors) to attract more investors. If you’re really lucky (or really savvy) and invest in the right business at the right time your personal wealth could grow explosively, like say if you invested in Microsoft before Bill Gates released Windows 95 or in Apple before they released the iPhone.

So in summary you invest in carefully selected businesses to get rich and once you are rich you lend your money to protect it from the devaluation of inflation and so your wealth grows passively off other people’s hard work.

But what makes a business a good investment?

Naturally the best businesses to invest in are the ones least likely to seek investors, if some start-up has an innovative new product that’s going to sell really well they can crowdsource their initial production run or get pre-orders from their customers and use those pre-orders to get a business loan from a bank. So why would they sell you a share in their business when they know their business is about to quickly increase in value?

Likewise the businesses that are most interested in seeking investment are usually time wasters, they have some great idea (at least they think it’s a great idea) but they haven’t prototyped it yet and they expect you to pay for the development and then they get pissy when you want the lion’s share of the profit even though all they had was an idea and you were the one who made it a reality and all the while they’ve practically been working as your employees.

Ideally you want to bet on yourself, if you know what it takes to make a business successful then implicitly you know how to make a successful business and if you’re the employer you own the business, you own the IP, you set the terms of employment and when there’s profits being made you get the lion’s share. You want to be one of those businesses that don’t need investors because you developed the product yourself (this is A LOT of work) and made your prototype and you developed your own website and you wrote the software and you recorded the promotional videos, or you paid for someone else to do some or all of these things.

Basically you need to achieve minimum viability, once you have the absolute bare minimum you need to start making money and you start making sales (even if those sales are only pre-orders) that proves that your business can make money and once your business is proven to generate a profit it’s simply a matter of increasing the scale.

 

[BurnedOut]

As a matter of fact, investing is much riskier than lending. This is because, it has been scientifically proven that the share market is nothing better than poker, hence the so-called experts predict nothing better than chance. The so called return rate does not matter if the economy has taken several hits towards the investment's maturity because even if you have a 1000% return rate and inflation is also 1000%, you gain nothing because your currency never appreciated in real terms in the first place. The same case is with other monetary instruments such as FDs, insurances, mutual funds, etc

If there is a successful startup out there who has just entered the fray of the share market, it is very difficult to say whether it will survive long enough. There is no way to predict that. Secondly, many startups are looking for investors but many of them shut down for not being to find any. More startups shut down than startup therefore, investing in startups is a risky business again because of the overconfidence of the investors.

It looks historically, usury has won the battle of being the most efficient way to become richer and it seems like it will stay that way till the end of mankind. Lending is probably the safest among all the other alternatives because it is based on practical and predictable grounds because it directly concerns the agent than function through proxies as the inframentioned cases.

If you are serious about investing and then getting rich, a nice locker or underground storage will mostly work better than a bank. That is because you will not lose money due to inflation's eroding nature.

 

[sushi]

A loan is different to investing, a loan has to be paid back regardless of how successful the business is or isn’t and the interest rate on the loan is a set percentage over time (set relative to inflation with a variable rate loan) and there’s limit on how long you have to repay it with the loan being repaid in instalments based on a schedule you must agree to before the loan is given. As a lender loaning out your money is a bit like having your cake and eating it too, it’s still your money you’re just letting someone else hold it for a while and they pay you for the privilege so you’re getting money for having money. That’s why rich people do it, when you have lots of money is the most expedient and least complicated way of both storing it and turning a profit from simply having money, it’s low return but also low risk and more importantly low effort.

Investing is a different game entirely, when you invest in a business you’re purchasing a stake in that business and whether you get a return at all is based on whether that business is successful or not and unfortunately most new businesses fail. On the other hand if the business is successful you’ve got a share of that success so you get a percentage of that business’s profits and some businesses pay dividends (giving money to their investors) to attract more investors. If you’re really lucky (or really savvy) and invest in the right business at the right time your personal wealth could grow explosively, like say if you invested in Microsoft before Bill Gates released Windows 95 or in Apple before they released the iPhone.

So in summary you invest in carefully selected businesses to get rich and once you are rich you lend your money to protect it from the devaluation of inflation and so your wealth grows passively off other people’s hard work.

But what makes a business a good investment?

Naturally the best businesses to invest in are the ones least likely to seek investors, if some start-up has an innovative new product that’s going to sell really well they can crowdsource their initial production run or get pre-orders from their customers and use those pre-orders to get a business loan from a bank. So why would they sell you a share in their business when they know their business is about to quickly increase in value?

Likewise the businesses that are most interested in seeking investment are usually time wasters, they have some great idea (at least they think it’s a great idea) but they haven’t prototyped it yet and they expect you to pay for the development and then they get pissy when you want the lion’s share of the profit even though all they had was an idea and you were the one who made it a reality and all the while they’ve practically been working as your employees.

Ideally you want to bet on yourself, if you know what it takes to make a business successful then implicitly you know how to make a successful business and if you’re the employer you own the business, you own the IP, you set the terms of employment and when there’s profits being made you get the lion’s share. You want to be one of those businesses that don’t need investors because you developed the product yourself (this is A LOT of work) and made your prototype and you developed your own website and you wrote the software and you recorded the promotional videos, or you paid for someone else to do some or all of these things.

Basically you need to achieve minimum viability, once you have the absolute bare minimum you need to start making money and you start making sales (even if those sales are only pre-orders) that proves that your business can make money and once your business is proven to generate a profit it’s simply a matter of increasing the scale.

still a bad investment is like a bad loan, you loan it and you get nothing back. or your principal shrinks. Lending risk is similar to investing risks.

They have obligation to pay but they can still default it. Both investing and lending are contractial relationships.

it is different but also similar, i understand what you say though.

Most banks would prefer lending to successful business or a turnaround business rather than a failing or collapsing business.

 

[Daddy]

I share the same view of Cognisant, but want to add that you don't have to only look at investing as trying to support a successful business or loaning money on interest; you can buy resources that have fixed supply, such as property or a house (and look to rent things) or even bitcoin (as long as it has stable or increasing demand), or follow depressive trends in the stock market and business world, buying stock's low and selling high after the depressive decline ends. Or even follow trends, like what happened with the Gamestop thing (though I realize that's hard to predict).

It's kind of counter-intuitive because you're not really investing per se, but taking advantage of economic imbalances and trends, like being a leech on society, but fuck it, everyone is out for themselves anyway, so might as well get yourself a little filthy as well.

 

[onesteptwostep]

I was under the impression that investing is more profitable than leaving your money in the bank to grow on interest now. A lot of people in my generation are starting on stocks now- there's a lot to learn about the stock market since the industries are endless.

 

[Cognisant]

The problem with speculating is that everybody does it so the risk vs reward ratio is usually pretty accurate and so to turn a profit you need to be ahead of the game somehow, you need to know something that most people don't which is especially difficult when there's entire institutions that specialize in doing it.

 

[sushi]

Lets just say you lend to a bad business or debtor.

what do you gain?

you can charge him perpetual compound interest which he cant return or confiscate his assets and companies. Then he just defaults and declare bankruptcy.

its still not worth as much as lending to a successful growing business

 

[Daddy]

The problem with speculating is that everybody does it so the risk vs reward ratio is usually pretty accurate and so to turn a profit you need to be ahead of the game somehow, you need to know something that most people don't which is especially difficult when there's entire institutions that specialize in doing it.

Probably, but I'm not so much recommending that someone "speculate", rather than follow trends.

For example, stocks tanked bad last year because of the virus and anyone that wants to invest long-term would have gotten some good deals on companies hit hard by it.

Another example, Tesla, that's a company that has shown a lot of promise. There's also a large short-selling following that hates everything about their business model and debt-to-profit ratios (which I don't want to get into), but over say the last two years there has been a lot of public interest in Tesla succeeding and people generally really like their cars (despite the high price) and it would have been great to hold as a long-term investment during that time (something I did).

Another example, WorkHorse just lost a lot of money from losing the USPS contract (which has been in talks for a long time now). If you were a safe investor, you could have bought years early, held on for a while and made ~300% gain over a couple years (before the contract finalized and taken advantage of the speculators). On the other hand, I actually lost money because I wanted to hold on after, thinking they would get the contract and they didn't, so I messed up here. But it happens. I follow long-term investment strategies that maximize the 0% tax on capital gains, while using that to maximize and fund my no pre-tax 401K I have where I work, so I wasn't interested in selling early anyway and they may get a future contract with talk of USPS getting more money to support a smaller electric fleet, specifically.

And then there is crypto; it's kind of a stupid "investment", but when big game players like the Banks start investing in and taking Bitcoin seriously and everybody seems to think it's worth buying, doesn't hurt to hold onto some early and sell it maybe a year or two later as a long term investment (although I wouldn't buy in now because it seems to have reached a crazy high and will come crashing down because everyone sees it as free money when it's really a legal pyramid scheme).

 

[onesteptwostep]

@Daddy

You seem to know a bit about stocks.

I have a question, do people generally take out loans to invest? It's somewhat starting to become a trend in South Korea, I was wondering if there's a similar phenomenon in the US. What I read online is that stocks is for people who have disposable income.. but this generally means that it's for people who are already well off in the first place.

I generally don't like stocks because it's basically just riding on the talent and creativity of others, but if it crosses the threshold of being a fixture of a person's financial portfolio in the near future, it seems like it would be disadvantageous not to invest... basically it would be bad if you were left out.

Stocks seriously feels too much hypercapitalistic to me. It gives too much life to the economy, making it as if the economy is more important than the particular being.

 

[sushi]

my point is that an investor should think like a banker when investing stocks, even though there is a difference. Both seeks to grow their capital. The bank collects interest no matter the business is doing well or not.

 

[Daddy]

@Daddy

You seem to know a bit about stocks.

I have a question, do people generally take out loans to invest? It's somewhat starting to become a trend in South Korea, I was wondering if there's a similar phenomenon in the US. What I read online is that stocks is for people who have disposable income.. but this generally means that it's for people who are already well off in the first place.

I generally don't like stocks because it's basically just riding on the talent and creativity of others, but if it crosses the threshold of being a fixture of a person's financial portfolio in the near future, it seems like it would be disadvantageous not to invest... basically it would be bad if you were left out.

Stocks seriously feels too much hypercapitalistic to me. It gives too much life to the economy, making it as if the economy is more important than the particular being.

Oh, I don't know that much, heh. My obsession with stocks and money is all a defense mechanism, really, against the crowd and society. I guess it's a little ironic that betting against the stupidity of the crowd when it comes to investing seems to almost always pay off.

It is hypercapitalistic, I agree. It's a major problem with capitalism. You can be the smartest person and have the best ideas, but if you don't have the capital or resources to put good ideas into practice, you have to rely on those that have money and they will take you for a ride in the end (though hopefully you do gain something of economic value out of it).

my point is that an investor should think like a banker when investing stocks, even though there is a difference. Both seeks to grow their capital. The bank collects interest no matter the business is doing well or not.

Yes, banks are the greater parasites. I guess I'm doing it wrong; I need to open a bank.

 

[sushi]

no its a banker mindset, you just analyze whether the company is good or not by looking at their financial statements before granting the loan.

innovative ideas and startups have high sunk costs, risk and uncertainty, which is why they look for venture capital for funding rather than conservative bantkers.

 

[Daddy]

Yeah, but bankers give loans for liabilities and if payments aren't made on time, they can repossess and resell those liabilities for often greater profit. That doesn't progress the economy, it bubbles it and leeches it. Capitalistic parasite in my book, but I'm not judging. Don't hate the player, hate the game, unless the players also make the rules...