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Friday, July 10, 2015

LIFEHACKER WRITER SAYS YOU CAN'T LOSE WITH STOCKS

Today I came across a rather bad work published by Lifehacker, presumably to encourage young adults to speculate in stocks, which might make a cynic believe Western civilization is doomed.

A writer for Lifehacker told readers that it is mere pernicious myth that you can ever lose "money" in stocks. And then the hack for Lifehacker claimed that investing is "creating a diverse portfolio and riding the general growth of the market." He said doing practically guarantees that such a portfolio never can go to $0.

Brushing aside that no one uses money anymore as money is coined metal by weight and fineness, of course anyone can lose with stocks, the hack's main claim is this:
"[Y]ou don’t actually “lose” any money until you sell something."

By his logic, if someone pick-pocketed your wallet, you didn't lose your cash until you go to buy something. So as long as you don't try to buy anything, magically you did not lose your cash.

So again, according to that hack at Lifehacker, if your portfolio stays in the red to the remainder of your days, as long as you don't go to sell, you haven't lost. In effect, you can stick your losses upon your estate and your heirs.

That Lifehacker hack doesn't even seem to know the difference between investing and speculating. Investing means buying for cash flow. Speculating means betting on price.

These are investments:

  • You bought an oven and utensils to bake pizza for sale to others.
  • You bought a house to collect rent from others.
  • You bought a stock that pays a dividend for the dividend.
  • You bought a corporate bond that pays a quarterly coupon.

These are speculations:

  • You bought 100 shares of AMZN hoping the price will rise.
  • You bought one ounce of gold hoping the price will rise.
  • You sold short 100 shares of TWTR hoping the price will fall.

Of course, if the sum of cash and bank credits rises faster than output of the economy because your friendly neighborhood central banker has engaged in the rather reckless policy of quantitative easing and your stock price stays the same or rises at a slower rate, you have lost buying power. Thus, you have lost on your stock.