Having spare capital is both a blessing and a curse.
Some time ago, my friend Michael and I realized that savings melt every day. Damn inflation. That’s an easy one, we thought, as we typed investing in google. The search results were full of interest rates, mutual funds, bonds, stocks, options, and a gazillion other things. What a mess! We expected simple answers but found only frustration and uncertainty.
Was it always like that? Let’s go back in time to maybe 1000 BC and find out!
You’re a humble bean farmer named Sean. The harvest has been particularly plentiful this year, and you found yourself with more beans than you can eat or sell. What do you do?
Leave it as it is, and it will rot. Beans! Maybe you could give it to someone who wouldn’t waste it? But then you got nothing for your work. Perhaps you could find someone who would take the beans now and somehow reward you in the future. Let’s call this an investment.
You approach both of your neighbors to gauge their interest.
Leonardo Da Riskus promises to design a state-of-the-art irrigation system if you feed him throughout the winter. He knows his beans. Your fields are rather dry, so his invention may double the crops. Still, the task is monumental, and you can’t be sure if he’ll deliver.
Your other neighbor Julius Lowyieldus is not an inventor. However, he’s got fermentation vats that can help preserve your crops. He’ll take some in exchange, others will get spoiled, but you’ll retain most of your product to be sold later. Unimpressive, but safe.
You scratch your head, check your risk appetite, and take one of these gambles. Maybe you win, maybe you lose, but at least the game is straightforward.
Farming beans became the family tradition. Johnny, your descendant 75 generations later, is in a similar pickle. His world is more complex, so he got an investment advisor, being the cautious guy he is. Smart.
When the advisor recommended a combination of commodity options and contracts, Johnny asked:
– How does it all even work?
– Don’t worry, it’s just basic economy
Replied the advisor as he handed Johnny the pen. The deal felt full of beans, but what else to do. Johnny sighed and signed. These are confusing times.
Sean had it simple with supply, demand, and some risk. Unfortunately, that world is gone now. To solve the same problem, Me and Michael embarked on a grand expedition into the world of finance. It was rewarding but unnecessarily taxing. Let’s see if there’s a better way! In the upcoming posts, we will try to share our distilled findings with you in an approachable way.