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On Investing and Shorting

On Investing and Shorting

If January’s story of Reddit Robin Hoods and hedge funds has taught us anything, it is how unbelievably powerful economics have been in shaping and steering the course of superficially political issues. All the moral arguments in the world Money indeed seems to run the world. While the love of money may be the root of all evil, the absence of money seems to be the root of much suffering and resentment. It is easy to call sour-grapes on the evil rich, but most people who have been poor understand that it sucks to live in poverty. And a lack of understanding about the nature of money may be the greatest distinguishing feature differentiating those destined to be rich and those destined to be poor.

Dollars are not the same as money. Equating the two is a poor-person’s mindset. Especially in this coming year.

Cash is a poor man’s money.

Marilyn Manson

Value is the source of money.

When you think of money in terms of value, and see dollars (or whatever other metric for wealth you might choose; there are many) as something which inevitably follows value, it is much easier to accumulate wealth. It puts you at the front of the metaphorical wave, letting you surf on the flow of value, rather than frantically swimming to catch up.

Having worked in pest-control, as a carpenter, and as an electrician, I’ve been inside a wide range of homes — from city housing authority apartments to multi-million-dollar mansions. There is a pattern that distinguishes the two: taste. On the whole, the homes of the wealthy are marked by a cohesive sense of developed taste. On the whole, the homes of the poor are marked by disjointed and gaudy décor.

Does interior decoration make one rich or poor? Obviously not.

But the ability to distinguish what is valuable and what is not does. And as a byproduct, it seems to result in beautiful homes. Put a rich person in a $1200/month rental house for eight months, and chances are high that they will have made some alterations that increase the value of the property. It is their nature to do so, because they have acquired a taste for what is valuable and surround themselves with value. Because they know what value is, they know how to create value… whereas someone who does not know what is valuable would be more likely to decrease the value of the same property. These alterations to the hypothetical house will increase or decrease the respective inhabitants’ wealth according to their nature — not directly in dollars, but in value.

When you understand the nature and origins of value, it permits you to see it rising or falling in advance. And this seems to be where the wealthy really make their money: investing and shorting.

Just to reiterate the point, investing and shorting is not about multiplying dollars. That’s the poor-mind’s interpretation of what’s going on. Investing and shorting are about identifying trends in value and getting in on what is valuable. People can only compare it to “gambling” by imagining that the investments are essentially like cards or dice — driven by chance, and not by force of value and quality. The person who has not developed a sense of what is valuable cannot see the difference in value between potential investments, and so it looks like a proverbial crapshoot.

But those who can understand what is valuable (i.e., what others value or will value) can invest in what is valuable. Dollars follow.

And there is always a way to invest in — or short — something.

It could be as simple as buying a lot of something and waiting for a time of high demand.

Ammunition would have been a good one two or three years back.

But the point is not the pursuit of money: it is the belief in the value of something. The potential for wealth lies in the undervaluing or overvaluing of the item in question. If something is undervalued, you invest. Perhaps there is a serious shortage in skilled labor, and a lot of construction lies in the future; maybe it would be worth four years of time investment to become a carpenter or a plumber.

Or maybe you think that American Democracy is seriously overrated and overvalued.

Can that be shorted?

From the conventional, poor-minded perspective of wealth as dollars, such a thought is counterintuitive, maybe even impossible. But when we think in terms of value, the principle is intuitive, even obvious.

The only question is implementation.

Let us imagine — hypothetically — that we believed that our government and election system was inflated in value. “Subprime,” if you will. How could you act on this belief?

The obvious answer is that you could sell your vote.

This is, of course, illegal. The hypothetical point is to illustrate the concept that everything can be invested in or shorted… though the illegality does not appear to prevent the practice on a systematic scale. One wonders what would happen to our election system — and belief in democracy — if everyone were to “short” the vote in this way.

But one could, at the very least, not make a bad investment. After all, if wealth is not dollars but value, then perhaps the electoral system and its outcomes are simply a bad investment.

The most valuable and universal of all currencies is time. It never appreciates or depreciates relative to some more fundamental currency because it is the backing of everything else. Time invested in one thing is time not invested in something else. It is one thing that everyone has access to, and by careful investing, one can increase or decrease the quality of one’s subsequent time on earth.

This is the subjective metric for all value.

How do you experience time?

I can say from experience that the wealthy seem to have a much more pleasurable time in general than the poor. But I don’t think it’s the wealth that does it. Wealth is just a byproduct. They know what to invest in and what to short on the basis of value, judged by their experience of time.

And perhaps this is why the wealthy seem to have so much more patience, which is probably the single most important virtue for investing (or shorting).

Robin Hood investors may have discovered a powerful tool with which to fight back against manipulative hedge-funds who drive the perception of value, often against actual value. But hopefully, these 21st century Merry Men might see the broader power of the tool that they’ve discovered… not merely as a weapon (powerful as it is in that regard), but as a constructive implement for finding and creating value in their own lives. They can learn to invest in things that are valuable, and to not invest in things which are not valuable.

There is a certain class of people who see investors as somehow inherently evil — as manipulating markets and making money but without doing any work. I think this class of people is related to those who see money and dollars as identical. They see wealth accumulate among those who aren’t doing “an honest day’s work” in the conventional sense, and assume that something must be amiss.

But it isn’t.

Money isn’t the root of all evil, nor is investing. Neither God nor Satan, it’s a tool and an (imperfect) signifier of value. Shorting, likewise, is a tool — not good or evil inherently, though commonly used by many that the general American populace would consider “enemies.” By diving into GameStop, weren’t Robin Hood investors essentially “shorting the short?” They weren’t going in for the long run — they were trying to manipulate prices in order to “shake out weak hands.” Or, as it happens, over-leveraged hands. This is, incidentally, what many hedge-funds and financially-connected organizations do regularly — just this week, for example, F2 Pool was at it again in the cryptocurrency world.

Money is not wealth. That wealthy people understand this perhaps makes it easier for them to use and abuse the signifying power of money. But if you understand value, you can learn to spot divergences between value and the signifier (at least in fields where you have the requisite experience).

That gap is where opportunities for acquiring wealth have always been. And in those gaps, investing and shorting follow naturally from the direct perception of value.

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