What is the difference between hoarding and investing?
In this episode, you’ll learn:
- The ingenious way many Swedes fund their retirement.
- What does it mean to invest.
- What is the social aspect of investing.
- What is hoarding.
- Why we need more people to be investors versus hoarders.
- What is the freedom to roam
Show Notes
Digital Gold by Nathaniel Popper
The Power of Gold: The History of an Obsession by Peter Bernstein
Ron Swanson and his gold stock
Overview of the freedom to roam or allemansrätten concept.
Indian President arrives in Stockholm, receives grand ceremonial welcome (video)
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Summary Article
The Difference Between Investing and Hoarding
When you travel through Sweden, you see a lot of spruce and pine forests. If you look even closer, you will notice most of the forests are quite orderly. The trees are not dispersed randomly, but there is a measured degree of separation between them.
These are managed forests—tree farms.
According to the Swedish Forest Agency, 50% of the nation’s forests are owned by families, and most of those family forests are owned by women.
The forests form a significant portion of these families’ retirement savings. Most of the trees in these forests grow for 50 to 75 years before they are harvested. That means the current generation of retirees benefit from the trees planted by an earlier generation.
These retirees or near-retirees in turn plant young trees to replace the trees that were harvested. A tree that is planted young and grows for 75 years can generate a significant financial return.
The forest owners are investors. They invest capital in young trees that grow over the decades and are then harvested to provide timber for houses, furniture and other uses.
What Is Investing?
Investing means deploying capital in projects that enhance a nation’s capacity to produce and deliver goods and services to meet the needs of the current and future populace.
This includes investments in roads, bridges, factories, stores, basic research, education, power plants, and renewable resources such as timber.
Investing often has a social aspect to it in that the capital invested by savers are their assets, but they can be others’ liabilities.
When I buy a corporate bond, it is my asset, but it is debt or a liability of the company that issued the bond.
In order to pay off that debt with interest, the company must invest the bond proceeds in a capital project that will generate a return higher than the rate of interest paid on the debt.
The same principle applies to stocks. When a company issues stock, they sell a portion of the enterprise. The company takes those proceeds and invests it in capital projects that will hopefully generate sufficient profits to pay dividends to its shareholders.
The stock is my asset, and while the company’s directors and officers don’t have a contractual obligation to return my investment or even to pay a dividend, they do have a fiduciary duty to act in good faith and apply their best business judgment in deploying the capital owned by its shareholders.
What Is Hoarding?
Hoarding means to hide something away either for a future productive use and/or in the hope it will increase in value.
Items hoarded for future productive uses include food, fabric and ammunition.
Some items hoarded have little or no productive uses in that they are not employed as inputs to create goods and services that sustain life. Items in this category include gold, precious gems and more recently the digital currency bitcoin.
Fabric can be turned into clothes and food into human energy, but gold and precious gems can’t be turned into anything, unless you count jewelry.
Consequently, items hoarded that don’t have future productive uses can only increase in value if their demand by future hoarders increases.
While gold and bitcoin don’t have productive uses, they certainly entail costs to society to produce the energy and other resources used to mine them.
Investors with diversified portfolios typically have most of their assets in securities or projects that contribute to the world’s ability to meet the life sustaining needs of current and future generations.
Many investors for diversification purposes also have a portion of their portfolios allocated to hoards.
What It Takes For Hoarders To Be Successful
There is a simple requirement for investors to be successful at hoarding nonproductive assets such as gold, precious gems and bitcoin if by success we mean the assets increase in value over time.
That requirement is most of the world’s capital needs to be invested in projects that increase the world’s capacity to produce and transport life sustaining goods and services such as food, clothing, energy and shelter.
Otherwise, gold, precious gems and bitcoin prices will skyrocket for a time due to increased demand until shortages in critical resources ensue. At which point, the population will be reminded you can’t eat gold and bitcoin.
