A Customer's Perspective
Investing is something that people approach in many ways for many reasons. I’ve decided to think of it as a business. When you take that attitude, investing has a lot of good things going for it.
You don’t need a license or a building permit. You don’t have to buy worker’s compensation insurance, pay Social Security taxes or buy liability insurance. You go to work when you want and dress however you want. There are no employee problems because your employees are “little dollar critters“ that work 24/7 for you, don’t quit, never come in late, call in sick or ask for time off. There are no loan or lease payments to make, and you are never too old or put out to pasture. You can close up the shop any time you like for vacations, and no one cares.
All forms of business involve the buying and selling of something. The beauty of investing as a business is that there is always something to buy and a mass of humanity eager to receive the products you want to sell. The products require no warehousing or commercial storefront, and they don’t spoil or become obsolete. They are never backordered, and they don’t have to be unloaded off a truck. Perhaps best of all, there is never a warranty claim or a customer complaint.
Is this a great business or what? The basic premise of any business is to buy and sell ither a service or merchandise. The profit potential of buying and selling stocks and options is just as good as marketing appliances, cars, clothes or oil changes.
Your investing business can be of any scope you wish and has more growth potential than most brick-and-mortar forms of business. An Internet brokerage account can be started with less than $1,000. A sidewalk hot dog stand would take more. Of course, as in any business, a couple hundred thousand is a lot more fun to work with and increases the potential for profitability and growth substantially.
Any business requires some start-up capital, and there is a definite risk of losing that capital. Investing — as a business — is the same; however, the amount of capital required is less and, statistically, the risk of loss is less. Only a small percentage of new businesses survive five years, but most investors — even those with little knowledge and ability — are still going strong at that point.
My favorite part of the investing business is selling put options — the right to sell you a stock at a specified price for a given period of time. You receive money rather than invest your own; the effect on the upside is about the same — or better — as buying the stock, and the risk is less if the stock price moves lower. There is a continuing market for options, and put contracts are rarely assigned — actually buying the stock. If a loss is developing, the put option is simply bought back before expiration day. Since you receive money rather than laying out your own funds, the APR is infinity.
Receive money? None of your own money out? More money on the upside? Less risk on the downside? Yep, it really does work that way. However, it’s for those who invest as a business and not recommended for those who simply want to preserve their retirement nest egg. You can buy a thousand shares of stock, forget about it and no one cares. Options have expiration dates. They fluctuate at a much higher percentage than stocks, must be monitored and action must be taken before their expiration.