What is Investment?

You hear and speak the world “Investment” in routine talk. But have you ever think that ‘What is Investment?’

Everyday when you open a CNBC or any other Business news channel, you will hear the word “Investment” & “Investor” every so and forth. Not only this but everybody related to the stock market is calling himself an Investor & his activities a Investment.

The word ‘Investment’ is become so much popular that everyone trading stocks in the market is calling himself an Investor & his any activities an Investments.

But this is not true. Basically Investment has a strict definition. And everything else which is not included in the definition of Investment is known as a Speculation.

*** What is Investment?

Well there are literally hundreds of sophisticated definitions of Investments. But here I will discuss two definitions of Investments. One is Layman’s Definition & the other is world’s most acceptable definition of the Investment from the great Investment Book, “The Intelligent Investor” by Benjamin Graham. In fact, Warren Buffet the Legendary Investor & world’s richest person also follows this Definition.

$ - Simple Definition (Layman’s Definition):

Well, in Simple words, Investment means making your money work for you harder instead of you work for the money. Understand?…… Well, see. When you invest your money, it means that you buy some Asset out of your money and keep that Asset for longer period. The day you invest your money, it starts working for you.

Now, Asset is anything which is likely to appreciate in its value & price in future. In other words, An Asset is something which puts money into your pocket. Anything can be Asset.

Examples of Asset are, Stocks, Bonds, Gold, Real Estate, Mutual Funds, Art, Antiques, Web Properties (Blogs, Forums, Websites, Communities), Businesses, Rare Coins, Wine, Old Whiskies, Rare portraits & Paintings……………….etc…….

So Whenever you buy any of the above Assets out of your Money, it is known as Investment. In more simpler words, “Buying Assets out of money after thorough research & Analysis of that Asset is known as Investment”.

Many people have a false belief that, Buying only Stocks, Bonds, Gold, Mutual Funds & Real Estate out of their money is the Investment. Everything else is not the Investment. So they commonly call themselves ‘Investors’ whenever they buy stocks, bonds, gold, mutual funds or real estates. But this is partial truth. if you buy any Asset (Any means literally any) out of your money, it is known as an Investment.

Buying an IPL Franchisees (Indian Cricket Team) is also an Investment. Because IPL Franchisees are the type of Asset Class. The reason why IPL Cricket Teams are Assets is because once a Business Tycoon buy it for millions of dollars, it will appreciate in its value in future (Capital Gain) as well as it will provide a Cash flow to the Investor. Whenever, a Business Tycoon will sell these franchisees to the other Business Tycoon, he will get profits (Capital Gains).

Not only this but buying a Race Horse out of your Money is also known as an Investment. Because Race Horse is the Asset. It is likely to appreciate in the future if it performs well as well as it may (or may not) provide you the Income.

Buying a batch of wine & selling it on maturity is also an Investment. Because the wine is an Asset. It appreciates in its value on maturity.

Buying a painting or portrait of any Artist is also known as an Investment. Because that painting will appreciate in its value in the future. It is known as an Art Investment.

So it is not that, if you buy & sell stocks than and only you are doing Investment. But whenever you buy any Asset out of your Money hoping that it will appreciate in future, it is known as an Investment….

$ - The Definition of ‘Investment’ by Benjamin Graham, The Teacher of Warren Buffet -

Well, This Definition I have stolen for you from the Book, The Intelligent Investor by Benjamin Graham. Benjamin Graham was the famous economist & the Guru (Teacher) of Warren Buffet. According to Warren Buffet, This is the best Investment book ever written on the Investment. And the Chapter 8 & 20 of this book are the basics of Investments. According to Warren Buffet, he had read this book almost 50 years back, and even today he follows the principles of this Book.

Definition of Investment:

“An Investment Operation is one which, upon thorough analysis promoted safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Here I want to tell you that, the above definition is the precise & accurate definition of the Investment. Not anybody and everybody in the stock market is the Investor.

See here the News Headline of reputed Finance Journal:

“SMALL INVESTORS BEARISH, THEY ARE SELLING ODD-LOTS SHORT”

Well, Well…… Investor is Investor. There is nothing small or big. Other thing is that Short-selling activity is not the Investment but it is the Speculation. So don’t confuse or mix the term Investment with speculation.

This quotation will illustrate the confusion that has been dominant for many years in the use of the words investment and speculation.

According to Newspapers, Finance Journals, TV Channels & Wall Street (or any other stock exchanges), everyone who buys or sells a security has become an Investor, regardless of what he buys, or for what purpose, or at what price, or whether for cash or on margin.

But this is not true. You should not confuse ‘Investment’ with ‘Speculation’.

*** Is Investment Risky? -

Of Course………. “Yes”…… Investment is Risky. It is Very Risky. It is Very Very Risky. In fact, it is the riskiest thing of this world…………….

Disappointed……….Right?………….

I know that, after such a long detailed article, you have not expected this type of answer from me right? So What do you expect fro me?….. Should I tell you that Investment is not risky and that will sound cool to you right?…… I think that will sound more comfortable to you after reading such a long and hectic article.

So Let me Tell you the Truth that, why Investment is Risky?…. Read the following 2 old Proverbs.

# –> “INVESTMENT IS NEVER A RISKY, INVESTOR IS RISKY’

# –> ‘INVESTMENT IS NOT RISKY, BEING UNEDUCATED IS RISKY’

Understand What I want to Say? if you invest your money and time behind increasing your Financial IQ, than Investment is not risky. In fact, Investment is a dead thing. It can never be risky. It’s just the tool. It’s just the vehicle. A Car can never be risky. But a Driver can be Risky.

So Increase your Financial IQ in analyzing various Investment and than you will never find Investment a Risky……..!!!!!!!!!!!!

So Now you Understand that What is Investment?………..