Monday, January 25, 2010

Ideas on Econ- an evolving set

Prices reflect opinions.

Buying assets from others with the intention of selling them later for more money is fundamentally weird. Buying a share of a company's profits makes sense- you are buying the dividend stream. Buying existing shares of a growth stock doesn't really benefit anyone- you are basically betting that you can predict better than the seller what the future value of the company should be. Buying new issuance, investing in ventures results is money that does something.  So does selling bonds.

Think about buying a home as an investment (versus as a place to live). You buy an investment home for the income stream it can provide. Let's say you put $50k down on a $350k property. It has an annual payment to the bank of $24k and a rental value of $20k. Is this a good deal? If the price of the home does not rise at faster than 8% per year, it is not a good deal, on the face of it. However, you are leveraged at 6:1, so it only needs to rise 2% per year.

Policy results - low tax on dividends and bond interest? I guess we have that, but people still invest in the lottery.

No comments: