As an investor, what is your contribution to social value addition?

Investors add value to the society in the same way as most other professions do. Each profession provides a tangible end product or an intangible service. Investors provide the later. Just like a bank invests money to different businesses, to help them grow, and in return want the capital and certain amount of interest, investors do just the same thing - they fuel the various business by providing them with capital, but instead of the fixed interest, they want a proportional part of the profit, or the loss, whatever comes your way.

The reason stock traders and investors are important to society is that they share the risks of a business, just like owners or founders, which debt providing institutions like a bank does not. So if a business fails, their assets -like buildings, chairs, cupboards, etc. will be sold off, to help recover some money, and clear of debts. So debt providers though are very important in the growth story of an economy, they just do not share the losses or profits, they just want their capital with some interest back on a specified date. Stock investors on the other hand lose money when the business fails. They are just like the founder or co-founder of the business- they have skin invested in the game. And as higher risks increase your chances of getting higher return, a successful business lets you get a proportional share of the profit pie.

Stock investors are also like the police. They weed out the bad guys, and make life easier for the good guys.

If a company is poor at its game, the stock investors pull their money out and bring the company to a halt, which helps weed them out from the market,and let other new players take a shot at becoming the next big thing! And if a company is good,they invest more money to make the good companies flourish and add value to the nation.

I personally look at stock investors as the life blood of a nation. Debt investing is safe, as chances are high that you’ll be able to recover your money. Equity investing is hard. Consider this - if a nation sheds away their fear or risk aversion a little, and invests in the industries that fuel production and net GDP in turn, the companies will be less choked to meet their interest dues. Because, losses will be shared and accumulate among a few, the companies can use this freedom to push forth harder, and emerge as better companies. And better companies lead to better incomes, better production levels, better GDP and eventually better economic situations for a nation.

Now here is my hypothesis. Technically speaking, the spread between cost of debt and cost of equity all over the globe is around 200 basis point. I hypothesize that if more stock investors are added to the investment scene in a controlled fashion, this extra risk appetite of 200 basis point will ease out interest coverage, and in turn lead to better performance of companies, which in turn will carry forward this 200 basis point advantage to a 200 basis points higher GDP growth rate for that nation.

And that is how you as an investor add value to society and script the rise and rise of your nation, and the human race at large.

Stay invested.

Happy Investing!

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