How not to invest

Many activities considered investing shouldn't be.

Take for example, saving which many think they are investing for the future.

If you hand in your well-earned money to the bank teller for safe-keeping, you are not investing. You are lending your money to the bank at ridiculously low rates close to zero. If you factor in escalating inflation and expansion of your expenses, the value of your money in the bank is slowly being corroded and eroded.
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Note added on March 19, 2013: If the capital markets around the world and in the Eurozone especially are roiled, blame it on Cyprus, the third smallest economy of the zone. To avert a default of its bloated banks, the European Union revealed a  € 10 billion rescue package to the country. Part of the attached conditions is a one-time tax of 9.9% for deposits greater than € 100,000 and  6.75% for lesser amount of deposits. The tax is on the principal, not on the interest. Talk about safety in deposits. 
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About the best thing of letting your money sit on the bank is, it is physically out of reach to thieves coming into your house.

Don't get me wrong. Saving is a good habit. It should be instilled into your kids while they are still young. But it is a poor and risky investment.

Oh, yes. There 's a redeeming value of saving. It is liquidity. The ease of converting your assets into cash. Every time you need cash when you need to buy a gift for your inaanak or your roof starts leaking, you can always go to the nearest ATM and touch your savings. If you consider an undeveloped lot you have been amortizing as an investment (which it is), try selling it at an attractive (your) price when a major expense arises.

Liquidity should be a major consideration when choosing investing options. This will be a recurring theme in future posts.

A second example is lottery.

One time I was with my five other co-workers on a provincial sortie when we had to stop for lunch at a mall.   As soon as we arrived there, they seemed to be looking for something other than a good restaurant. That puzzled me.

"Are you not joining us?"

"What?"

"The lotto jackpot is now P143 million."

"No, I don't play the lotto. The odds of losing are just too great."

"C'mon, it's just P20."

I read somewhere that the odds of hitting the jackpot is something like 1 to 49 million. Maybe greater. The odds are just too much stacked against the bettor. If you spend P100 pesos, you increase your chances  5 times (which one of my friends did), but your overall chance has not increased significantly.

I steadfastly refused to be dragged into parting my P20.

When the lotto results came out the next day, none of my friends became an instant multi-millionaire. So did the thousands who lined up at the lotto booths around the country. It also turned out that nobody hit the six winning number combination this time.

I still had my P20. In investing parlance, that is preservation of capital, a basic tenet of investing.

This is another recurrent theme in investing which we will visit time and again in future posts.