02/11/11 Baltimore, Maryland – “Most people want to be rentiers,” said Elizabeth. “I know I do.”
Rentiers are people who collect “rentes” – that is, they are people who live on their investments. If you have an investment in an apartment building, for example, you collect rents. That’s why you own the building. You want the income.
That makes you an investor. If you buy the building because you think it is going up in price you are not an investor; you’re a speculator. You’re speculating that you’ll get an increase in your capital.
“Most people who call themselves ‘investors’ are not really investors,” we explained, to know one in particular.
“If you are a real investor, you have to study your investments carefully and make sure they produce a stream of income that justifies the investment. But very few stocks provide enough in dividends to give you any real return on your money. The dividend yield is only about 2%, on average…or about the same as the official inflation rate. The real inflation rate is much higher…meaning, you lose money unless your stocks go up in price.”
How likely is it that stocks will go up in price? Everyone seems to think they’ll go up. Ben Bernanke – the most powerful economist in the world – says he’ll make sure they go up. And they’ve been going up for almost 2 years.
So… Why not buy stocks?
And guess what…they’re cheaper today than they were yesterday.
The Dow went down 10 points yesterday. If the Dow goes down another 5,000 points, we’ll be a buyer too.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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I live off CA munis (mostly), and so far so good! I’d like to hear BB’s opinion on all sort of munis (GOs, BABs, revenue bonds, etc.) as a source of income, however. I also have GE, GS, and some other corporate bonds in my IRA.
my son grew up, under alien influences, dreaming of becoming a rentier. then, with alien financing, he MADE it, and just a few years after 7 years of school on the credit card (which i advised against), too. unfortunately, it was in 2005.
before he’d finished the bubbly with the aliens, he was $100K +++.
not sure what he’s dreaming of, now. must check, soon. he’s still pretty tight with the aliens, but i’m not sure what they are thinking, now either. probably encouraging him to buy safe and sane investments, like in his IRA’s.
Be advised rents can include anything from the income derived from owning rights to the radio spectrum to the income derived from real estate speculation. Rents are defined as access rights to natural resources, or the “income derived from the gift of nature.”
No, you won’t be buying if it drops some 5,000 points. You will be complaining about the economy, about the bail-outs, about the jobless claims again. You will warn everyone about the market dropping another 5,000 points and that the trillions of injections are not effective. People are like that.
the munis will need a bailout too.
Unfortunately for the rest of us, they will get it.
As if inflation isn’t bad enough right now…
What Matt said.
I guess that makes anyone who holds gold a speculator as well, since it provides no income stream. Or is edge shaving gold coins considered a revenue stream consistent with such a bone headed and narrow perception of investing? And then what about those who are neither investing nor speculating in gold, but rather are hedging against a complete collapse of fiat currency? Its fine to own an apartment building. But good luck bartering it for a quart of milk when the chips are down, or even being able to collect the rent due. Hardly anyone owns any precious metals, and once the fial system collapses, the only way to collect rent will be to insist tenants cut the copper cable off their TV sets and hand it over.
Four years ago i listened to Bill and bought gold for 500 EUR an oz. Now i can sell it for 1080 EUR any time … but i will not becouse of fiat money dangers…
Thank you Bill.
A person who holds gold is neither a investor nor a speculator, but a saver.
Stock dividends are better than dealing with renters, who can pay late and trash your investment. It may be a challenge to find high dividend stocks. But not up here in Canada. I getting good dividends from PBN, CPG, NAE, RSI, DAY, PMT, BNP, PWT (PWE:NY), and AVF–4% and higher.
Well said Dunn
Gold mining companies can be an investment, paper gold is a speculation, and gold coins are money.
Physical precious metals are the only money that is not someone elses liability.
That is very important when you are trying to protect your wealth, in other words you are “saving”.
Holding gold to me means that I have yet to find an investment that I feel is WORTH risking my “savings” on.
It is the opposite of speculating or investing, it is refraining from speculating or investing by using the BEST KNOWN form of money in the history of the world.
When you sell your gold, you are BUYING dollars. When you buy dollars, especially if you are planning on holding them for any length of time, you are taking a risk that the US government will keep its promises. In my opinion thats a shaky bet.
So, paper gold is speculating, Paper dollars speculating, stocks mostly speculating but if you really do your homework it CAN be investing.
But gold bullion, coins etc, that is usually done as a form of saving.
Thats just my opinion, I could be wrong.
Yes, what Wes said. Especially the part about government keeping its promises. Folks think the government is looking ahead ready to solve what is on the horizon. In the couple of states and counties I worked for we looked at the current regulations. We added to those regulations. We responded to political pressures. Smart people and caring people but they were not in a system that looked forward or embraced change. Not like the for-profits I worked in that looked ahead in order to survive. I am not sure if the government will be ready for any big problems ahead. I would keep some physical gold and silver just in case.
Speculator, investor, whatever…we’re all looking for returns through postive cash flow and/or appreciation.
This is what most personal investors strive for, either dividend paying shares or investment grade bond funds paying a yield of around 5%
The only way to get there for most is to trade in a wide range of stocks in hope of capital gains, which compounded over many years will likely produce a sufficient sum of money to offer this chance.
if you are buying gold as a protection against harsh times just make sure to buy pure gold (including the necessary stamps and certificates).
a diamond ring is not a good investment: you pay 2000, but when selling it you’ll only get like 100. (95% loss). and that is now, imagine the prices when everyone panics and wants to liquidate their wedding-ring.
of course pure gold will loose you money in the case of either a panic (everybody selling) or the economy getting better (less desire from investors for the ‘safe’ gold).
which is the reason so many financial advisors are pushing gold at the moment: they want to get rid of the stuff before prices drop again. so they’ll tell you the same things as in the housing-bubble: that prices can only go up, that stones/precious metal will always retain some value, etc.
“Most people want to be rentiers,” said Elizabeth. “I know I do.”
well. we have that in common at least