What Is Investing?

Lesson 2: What is Investing

 

People often liken investing to gambling.

While investing and gambling certainly have similarities in that an element of risk is involved due to our inability to predict the future, investing is no more a gamble than starting a business, accepting a new job, or choosing a partner. In all these scenarios, success remains uncertain, but we can increase our chances of winning by tipping the odds in our favour, i.e. doing our homework.

So, what is investing?

Investing is laying out cash today with the expectation of receiving more back in the future.

In the words of Buffett, there are 3 questions you need to ask:

  1. How much cash am I going to get back?
  2. When am I going to get it?
  3. How certain am I will get it?

If you cannot answer these questions, you shouldn’t invest in that bond, that stock, that startup or the next big fad, regardless of what price you think you’re paying. But if you do choose to invest without being able to answer these questions, and answer them honestly, then you are gambling!

At Lockstep, our investment process is an attempt answer these questions. Given nothing is certain, i.e. risk, we adhere to a set of investment principles to help maximise the probability that we are correct.

On our journey together, we will unpack these principles.

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