Notes on how I think about wealth and investing

This is likely a “part 1”. I wanted to articulate the thought process that has enabled me to venture into the investing world — and specifically not about how I choose specific assets to invest in, etc. These thoughts helped me gain confidence in why investing (especially in the stock market) works, and why it might be better than, well, not doing it.

  1. Money (currency) lets me buy things.
  2. Currency is meaningful as long as I have things to buy and am immersed in the commodity market environment — being aware of how much things cost gives meaning to how much money I have.
  3. When the dynamic between my material desires and cash reserve tilts in the direction of having much more money than I can spend, my monetary wealth becomes less meaningful. Conversely, when my material desires far exceed my purchasing power, my limited wealth also attains a sort of meaninglessness.
  4. I can exercise control over this dynamic by attempting to streamline my material desires, as well as applying my imagination to generate more grandiose desires.
  5. When my purchasing power exceeds my material desires, the excess money starts becoming increasingly abstract. It’s simply a storage of “wealth”, whatever that is.
  6. Currency is just an institutionalized abstraction of value. By keeping my wealth stored in currency, I’m putting all my faith in one entity to preserve the value I generated through my labor (that I “mined”).
  7. Why trust only one entity? I’ve always believed in diversification of trust.
  8. What are other value-storage mechanisms that might be trustworthy?
  9. If I take a look around me, I see myself surrounded by products of industry, on a “platform” of real estate. I also see cash being exchanged, credit cards being swiped, and of course, people engaging in arts-and-cultural activities.
  10. What do people value? Modeling time and money as the two resource variables to optimize seems to make sense. What do people spend time and money on?
  11. Optimizing time might mean managing it better every day, building systems and tools to do recurring tasks faster, and staying healthy to prolong my lifespan.
  12. Optimizing money might mean accumulating currency (by selling goods/services), or investing in assets that remain valuable or increase in value over time.
  13. What are some things that have increased in value in recent and long-term history?
  14. Technology comes to mind, as does medicine, industrial production, and real-estate. Sometimes it’s due to a solution-space being unlocked for a long-standing problem (e.g. advancements in technology), sometimes it’s because the demand and supply curve skews (e.g. real estate vs population growth).
  15. When a solution-space is unlocked or expanded, it’s because of the efforts of people to solve problems. Generally this can be abstracted pretty well using the word “market” — new markets can emerge, be competed in, grow in value, and collapse.
  16. A company is a group of people attempting to generate some value in a market.
  17. Owning a company’s stock means owning a stake in the value that those people are generating.
  18. People sell stake in their companies because the funds from that sale enable them to build more valuable products. Public trading of stock exists when (and because) it’s profitable to sell a stake in your success.
  19. People are productive! I’m surrounded by people going to work every day and building things and solving problems.
  20. Having observed these people, I feel confident in the idea of investing in them.
  21. Buying stock is a way to invest in people who work to generate value, and to do so confidently relies on the observation of and faith in productive people.
  22. Backtracking a bit…
  23. Why are people productive? What about large-scale events of depression? What if people decide to focus their efforts on something that isn’t monetizable in stock markets?
  24. Well, that’s why the stock market is just one investment option in a diversification space including several others. One might also invest in skills, tools, and systems to increase productivity, real estate, small businesses, etc. It’s just that the companies that put their shares up for grabs on the stock market are collectively fairly productive and incentivized to profit, in addition to the market being very accessible (with high liquidity).
  25. I’m a person, and it’s likely I’ll be affected by such events too. I have to accept that I’m in for the ride and have faith that things will get better again. If they don’t, well I’m screwed anyway!

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