Good Profit: In Life, Business and Art, Are You Investing, Trading or Speculating?

The word “investment” is often misused, both in finance and in our daily lives.

You are either investing, trading or speculating at all times, and in all areas of your life, whether you realize it or not. This is as true in your art and in your relationships as it is in your work, and to navigate life effectively, it’s important to recognize that these terms are not synonymous. Not even close.

If it were up to me, investment would have an exceptionally narrow definition: An investment is something that pays you for owning it.

The most important part of this idea is that you do not have to sell an investment, ever, to gain from it. You earn by owning, not by selling. Fundamentally, you are getting paid to be responsible for something.

Here’s the obvious example: If you buy a profitable business, and that business gives you a small portion of its profit— enough so that over time it pays you more than it costs you to own—then that is an “investment”. It could be a website or a hot dog stand or record label or anything else you might like. What is important is whether or not, over a long enough period of time, it pays you more than it costs to own.

Anything that can generate enough revenue to more than pay for itself can be considered an “investment” in this business-y sense: If you can buy a car or an apartment or a studio—or even develop a new skill—and then turn around and rent it out for more than it cost you to own, that is an investment.

A beautiful thing here is that you don’t actually need any money to invest. Investments can be built.

Obviously, you can build skills at little-to-no cost in terms of money. The same is true of a website, and I suppose if you were handy enough, a hot dog stand, too.

You can build relationships as well. The best of these cost little or nothing in terms of money—though they do cost something very real in terms of time, attention and understanding.

Relationships also pay, though they rarely pay in money. Like any investment, for a relationship to be a good one, it should provide more than it costs. If this sounds at all Machiavellian to you, it is only because you are not thinking it through far enough.

For a relationship to pay more than it costs, it is not at all necessary for one person give more than another. The beauty of voluntary exchange is that each person must simply give something that the other person cannot provide quite as easily alone. In this way, both people are richer than they would be separately. In a good relationship, both gain more than they give. It is a kind of mutual investment. No surprise then, that many of the best investments involve many people, each of them, through the power of voluntary exchange, gaining even more than they give.

Of course, in the worlds of business and finance, you tend to get paid in money. But remember that money is optional. “Profit” can take any form you like. This is because all profit really means is “gain”, and you can take your gains in life in any form that you like. So it is time to stop vilifying that word, profit. 

When it comes freely from voluntary exchange, “profit”, or more simply, gain, is the most wonderful thing in the world. It is what we are all after, fundamentally. All it means is more of that which we desire. We can profit in terms of peace or love or knowledge or satisfaction or anything else, just as we can in terms of money. Money is a fairly convenient and widely-accepted form of profit, but it is not the only one, nor is it necessarily the best. As in all things, it can be wise to diversify.

Either way, there are only two questions that are important in classifying something as an “investment”: The first is whether you gain more from it than it costs you. And the second is whether you make those gains for owning, for taking responsibility—not for selling.

If the answer to is “yes” to both, then what you have on your hands is investment. If the answer is “no” to either, then oops. That’s not an investment. That’s not even an asset. That’s a liability, and liabilities are meant to be sold or otherwise disposed of. Not to gain anything, but to keep from continuing to lose.

Remember that if you have to sell something to make money, then you are doing something, but it’s not investing.

You might be trading—which is buying something in one place or time to provide it to someone else who is reasonably certain to value it more than you in some other place or time.

Or, you might be speculating, which is a lot like trading, but without the degree of certainty. (Though hopefully not without the reason.) Still, either way, if you have to get rid of something to gain from it, then you are not investing at all. There is a place and time for this as well, but it is not the same idea.

Ultimately, the art of investing is the art of taking responsibility. What you are responsible for is ensuring that the things you are taking responsibility for provide more gain than they cost.

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