Words Matter

According to the second edition of the Oxford English dictionary, there are approximately 228,000 words in the English language. For a non-native speaker, homonyms and other quirks in the language can be a unique challenge to master. In fact, you need look no further than the comments section of your favorite social media app or website to see the misuse of to/too/two, your/you’re, there/their/they’re and countless others by both native and non-native speakers alike.

Perhaps even more maddening is the opportunity for confusion created by words like read and lead, which rhyme, as do read and lead but read and read, and lead and lead are pronounced differently and do not rhyme despite being spelled the same!

While there are quite a few quirks, English also has specific words to describe very particular things. Take for example a simple shirt. A t-shirt is different than a v-neck, or a polo, or a flannel, or a dress shirt for that matter. The term blouse has an entirely different connotation. A tank-top or a jersey or a henley can further illustrate exactly what type of shirt you have in mind. While all these varieties can perhaps be confusing to a new speaker, to someone with English mastery the difference between a polo and a blouse is immediately evident and provides detail and nuance you could never get simply calling either a mere shirt.  

We have over two hundred thousand words in the English language because words, and their definitions, no matter how nuanced, matter. Perhaps this is a mundane observation, it is nonetheless an important one, as it allows us to immediately visualize details that would otherwise remain obfuscated. This concept is not unique to the industry of casual dress.  

In the world of investing we often come across people who confuse investing and saving. We also frequently find ourselves explaining that investing and gambling are not the same thing. Through the transitive power one might assume that if investing equals savings and investing also equals gambling, then saving and gambling are also the same thing, yet no one seems to have a problem differentiating between those two.

Saving and investing are not the same thing, obviously. Saving implies no principal risk, i.e. the dollar value of your account will not decrease generally. However, purchasing power risk still exists should the value of the currency decrease thereby decreasing the amount of goods or services you can purchase with your savings. In other words, think of the value of a million dollars over time; today, a million dollars buys less than it did fifty years ago. The principal remains the same, but the purchasing power has decreased.

With that said, investing does include principal risk, however, even with the fluctuations of value exhibited in investments, they can be much better at protecting purchasing power over time than savings, particularly with equity, also known as stock, investments.

Gambling and investing are not the same either. This should be obvious as well, but for many it isn’t. An oft-heard refrain is that the stock market is just like Las Vegas. This statement is clearly non-sense. Very few people have ever become rich betting against the house in Las Vegas. Contrast that to those who have been able to build real wealth in the markets, merely by focusing on a few main concepts.

I would suggest that if your experience in the market mimics your experience in casinos you are doing something very, very wrong. Either you are looking at too short a period, where markets can be either up or down, seemingly randomly, or you are making some classic investing mistakes like chasing fad investments, using untested strategies or violating the cardinal rule of buying low and selling high.

We are fortunate to have words that clearly differentiate between the concepts of saving, investing and gambling. It is our duty not to conflate the concepts and not only use the appropriate terms, but to also understand that these terms are not interchangeable. In fact, these terms are quite different and thinking of investing as saving or as gambling is ultimately asking to fail. At best you are missing out on opportunities, at worst you are wantonly destroying hard earned capital.

Maybe if we start using these terms properly we can eventually move onto other issues, like grammar. Consider the two following sentences: “Let’s eat, Grandma!” and “Let’s eat Grandma!” A simple comma can prevent cannibalism, but perhaps that is a discussion best saved for another time.