Shares Beat Everything Else

[ringledman]

Old post but an interesting investment thought -

[broken link removed]

In the world of investment, shares beat everything else -- property, gold, cash, ostriches, the lot.

the reason shares make for the best long-term investment becomes obvious when you think about what they are. A share is a small chunk of a business; a tiny portion of the totality of human effort. And human effort is the only thing that actually creates wealth -- human effort, combined with capital (which is itself the product of previous human effort) turns dirt into stuff.

All other investments are secondary to that, with no other actually creating new wealth -- they are all dependant on the stuff that shareholders earn. Sure, in the short term, demand can drive property prices ahead of shares, but that depends on how much people have to spend, which is totally dependant on the actual wealth generated by turning dirt into stuff.

The same goes for everything else. Gold and other shiny things only have a magpie value that is backed by the stuff created by human effort. In themselves they are almost worthless, with their only value being that of a stuff token (it works the same way as book tokens -- in the long term, the value of book tokens can't exceed the value of the books in existence).

Gilts and bonds? Those are fancy names for lending money to the government or to companies. But that money, and the money needed to pay your interest, comes from the same human-endeavour stuff that you get directly from ownership of shares, and in the long term it can't beat it, because there's no other source of stuff.
So, given that buying shares gives you a direct investment in the only thing that actually generates wealth, and that other secondary investments are wholly dependant on that generation of wealth for their value, how can any other investment possible beat shares in the long run?

 

[tenchi-fan]

I think their downfall, like gold, property, and everything else, is that the value is decided by the market. At least with a building which you own outright, you can rent it out to tenants who pay you with a portion of their "human effort"!

 

[ringledman]

I think their downfall, like gold, property, and everything else, is that the value is decided by the market. At least with a building which you own outright, you can rent it out to tenants who pay you with a portion of their "human effort"!

I don't understand this argument. The value of property is decided by the market also.

If you buy shares you earn an annual return in the form of a dividend. No different from rent earned on a property.