What is the investment?

As a starter I suggest you try to answer the question: "What is investments?".

Only, please, no in search of an answer to this question to get into the Yandex, Google or dictionaries. Try to formulate the answer in your own words. Try also asking this question to your friends, acquaintances, relatives, and colleagues. You will easily see that the range of possible answers to the question " what is investment?» it will be very, very large.

For example, one day I took out of my mailbox a flyer with a picture of trousers (for some reason with the pockets turned out) and a catchy inscription: Invest money in trousers!. Then there was the address of the fair, where a sale of trousers was being held at that time. Is it possible to call the purchase of trousers or any other consumer goods an investment? For me, this question is a rhetorical one. I do not consider investing in trousers as an investment. Another of the most, in my opinion, incorrect examples of using the term "investment" is advertising such as "investments in Forex". I can only call such slogans deliberate disinformation of the population.

I will give a few well-known definitions of investment, and then give my own definition.

"Investments - long-term investments of the state or private sector private capital in your own country or abroad in order to generate income in enterprises of different industries, business projects» Economic dictionary

"Investment - financial resources spent on construction construction and reconstruction, expansion and technical re-equipment existing enterprises, for housing, utilities and cultural and household construction» Economic and mathematical dictionary

"Investments - cash, securities, other property, including property rights and other rights that have a monetary value." Legal dictionary

Have you noticed that the meaning of these definitions differs greatly?

The most classic "Western" definition of investment belongs to William Sharpe, a Nobel laureate, author of a well-known textbook for American Universities called Investment. It is more suitable for flunking it in the exams of students of economic Universities.

In the broadest sense, the word invest means: part with your money today to get a bigger one their amount in the future William Sharp, " Investment»

Sharpe's definition doesn't strike me as a good one. For example, the purchase of lottery tickets falls under this definition. When we participate in lotteries, we part with money today, expecting to get a large amount of it in the future (and for what else?). However, the idea of considering participation in lotteries as an investment does not seem good to me.

A better definition, in my opinion, belongs to Benjamin Graham , the man who was called his teacher by the world's richest and most famous investor, Warren Buffett:

An investment is an operation that, after careful analysis, assumes the safety of the fixed capital and a satisfactory income Benjamin Graham, " Smart investor»

Already good. However, even in this definition, we will not find an answer to one important question: where will the income that we want to get come from? What can generate revenue and create additional value?

By and large, only one thing – business. So my definition of investment will be very simple:

INVESTMENT IS AN INVESTMENT IN A BUSINESS

And further discussion will clarify this very simple definition.

First, let's clarify what business is. Business, according to the classical definition , is "an activity at your own risk and under your own responsibility, aimed at making a profit."

One of the important words in the definition of business is "activity". Activity is what is done. This is a PROCESS. Therefore, any investment in something that does not involve "activity", "process", I will not be considered an investment. For example, a gold bar is not an "activity". Therefore, I will not refer to such investments as investments.

You can often hear a beautiful slogan: "Investing is when your money works for you."

I urge you to realize the banal truth: money itself DOES not work.

Money is just colored pieces of paper. They don't have hands, feet, or heads, so money can't work. PEOPLE always work. It is always useful to see when investing: who or what actually works in the business you are investing in?

The second most important word is "profit". There are many types of activities that do not bring any profit, but only bring expenses. Therefore, when, for example, a charity raises money for some purpose, it is absolutely incorrect to say that it "attracts investment". Patronage, sponsorship, etc. – this is all fine and useful. But it has nothing to do with investment.

In other words, a business is a PROCESS that makes MONEY. And investment is an investment in such a process.

Second, in addition to the cash flows shown above, there must be reverse cash flows: the business, as payment for the use of the provided funds, shares the resulting profit with the investor.

Try asking your friends another question: "Who is an investor?"

With a high probability you will get something like this answer: "An investor is someone who puts money into an investment."

But no less important is the second part of this answer, which is often forgotten: "An investor is someone who gets money from their investment." To a greater extent than has been invested.

Investments are made for the purpose of making a profit!

Investments that do not aim to make a profit are not investments, they should be called something else.

Third, business investments can be not only direct, but also indirect.

In other words, money can be transferred to the business not directly, but along the chain at the end of which the business is located. Participants in this chain can be financial intermediaries represented by financial institutions-banks, investment funds, trust managers, etc.

Moreover, there may be several such intermediaries, but at the end of this chain there must be some kind of money-making business or profitable activity. Someone has to feed all this Horde of investors and financial intermediaries? If no business at the end of the chain is visible at all, then this is not an investment. By the way, having a business is one of the main differences between investments and various types of financial pyramids and other scams, in which money is not invested in any real business.

Finally, I will understand business as an "activity" or "process", but not necessarily as a registered legal entity. For me, "business" is a process in which there is "activity" and there is "profit" (earned money). But the usual legal entity may not be, the business may take other, not quite classic forms.

In the next lessons of the course, we will talk about which ones.

In the meantime, try, in terms of the above definition ("investment is investment in a business"), to determine whether the following actions are investments:

a. opening a Bank Deposit
b. Buying a new car
c. buying collectible coins
d. purchase of shares
e. Keeping money in a safe
f. Purchase of investment Fund units
g. Purchase of foreign currency

If you are at a loss for an answer, think about who works in the supposed "business"?
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