Investment — Part 5 — What Is Investing and Why To Do It Now

This article is part of a series on investment strategies:
Part 1 | Part 2 | Part 3| Part 4 | Part 5

Last updated: FEB 18, 2022

Summary: General discussion on why you should invest as soon as possible, the impact of investing on inequality, and ways you should get started.

Why Invest?

“Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks.” — Carl Marx

Marx had his heart in the right place (with the good of the general populous in mind) but he had little understanding of psychology and what drives humanity towards progress. While it is true that there is a social relationship between labor and capital, there are a lot of societies with capable hands that never build anything, primarily due to lack of capital driven by compelling vision and creativity.

When I was young, I conceived of stock traders in much the same light as Marx — people fighting over imaginary money and contributing no value to society via their work (the same is being said of crypto now). I have since come to realize that investing in stocks is simply providing money to companies so that they can continue to operate, innovate, and provide new services. Investing in particular companies (e.g. electric cars, space exploration, CRISPER) is an explicit value judgement on what you wish to see succeed, and how you want the world to be like in the future. If you are investing in the oil industry, you should feel guilty. Marx could not have been more wrong — capital gives direction to labor, and rewards the labor which is changing society in a desired direction. Marx should have been investing capital in startups building digital government initiatives, fair voting systems, and micro-lending platforms (or their equivalent in his day) to build the infrastructure for a more fair society.

There is nothing ethically wrong with loaning your money to a company for a while (weeks or years), letting them grow their company with your investment, and then taking your profit in return for the loan. In fact, this is something socially-conscious people should be doing because it gives them voting rights in how the future will take shape. The early believers in Elon Musk’s vision for transportation technologies have supported a great cause while also making a great investment.

Transition Yourself From Labor to Capital

Society is rapidly becoming more unequal and the socio-economic gap between rich and poor is greater than ever. Unless you want to stay in the underprivileged camp and complain about the inequalities (they are true, but it doesn’t get you anywhere), then you need to start digging yourself out. Working hard and earning a wage isn’t enough anymore, regardless of your salary. You can’t just stick money in the bank, because it depreciates 3–4% per year due to inflation. The vast majority of people don’t save, and when they do, they save cash. So to get out of that cycle of being poor (or living paycheck to paycheck), we need to save, and then invest rapidly. Also, investing is not saving — it is giving your money to someone else to build something with, and then they give you part of the proceeds. The sooner you do it the better, because of compounding gains and the amount of time it takes to start seeing higher levels of return. There used to be many barriers to entry to invest while you were young, but with trading apps, fractional-share purchases, and automatic investment platforms, there is little to stop anyone now.

The other way to look at this is: if you hate your job, feel like you want more freedom, or are scared of what will happen when you can no longer work, you need to start transitioning yourself away from ‘contributing labor’ and towards ‘contributing capital’.

I Had a Bad Initial Investing Experience…

Lots of people heard about a cool stock (e.g. pot stocks, game stop, webvan, etc) invested too much money in it, and lost it. Then they never touched stocks again.

• When you fell off your bike when you were learning to ride as a kid, did you never try again?
• When your first relationship ended did you never try another one?
• When you failed a test in school, did you stop trying to get your degree?

Learning comes with failures. All major accomplishments had a history of mistakes that made it possible. Both SpaceX and NASA had a huge number of rocket explosions before they got humans into orbit.

If you failed, get back up and try again. Start small. Start experimental. Read some tips on what to avoid. It is recently possible to invest in fractions of stocks. Invest $50 and track what the percentage gain is on it. Try developing a few different strategies and investing $50 in each. Then double-down on the ones that work. I personally tried around ten different ideas before settling on two or three that outperformed the others. I am still running experiments with new ideas, and many of the new ones fail. This does not dissuade me. I just view them as useful negative feedback to fine-tune future strategies.

I Don’t Have Any Money to Invest…

The funny thing about people earning six-figure (or seven-figure) salaries and people earning minimum wage is that they universally think they don’t have extra money to save or invest. Spending always goes up to (or beyond) what we bring in. There are various social movements such as FIRE which show how it is possible to decrease spending, live lean, spend smart, and reclaim a large amount of your salary for other purposes. Some people live their entire lives this way and retire early with a modest lifestyle. However, you can just live that way for 5–10 years when you’re younger, use the leftover money to invest, and have a luxurious retirement later. Regardless of how much you make, take 10% of your monthly paycheck and put it towards some kind of retirement plan (preferably ROTH), and put another 10% towards some form of investing (probably either stocks or real estate). You can always do this, and if you automate it (direct-debit) you may be surprised how little you notice it.

* I am not a professional money manager, have no financial degrees, and you should make your own investment decisions. I do have a Ph.D. in a computer-related discipline and I like being skeptical of conventional wisdom, particularly when returns are low, conflict-of-interest high, and there is a deficiency of data showing causal relationships.