The Wise Investor
4.3 Trusts and companies
John decided to proceed, and discuss some more
specific details of investments.
"Kate, my dear," he said, "now we should talk
about the different forms of investment.
From our previous discussions, there are only
two fundamental ways to invest money.
The first is to lend it to someone and charge
The second is to buy something, or part of
something. This item must produce an income, or
rise in value, for you to make a profit.
Now, we should discuss the forms of investment
that operate in the modern world.
First we have the company. The legal concept of
a company has developed over several hundred
Companies have a name, own assets and employ
people. A company acts like a person in its own
right, and can do most things that an individual can
There are two ways that you may interact with
companies when you invest your money.
First, you may lend money to a company. This is
done in various ways, such as investing in
debentures or unsecured notes. This is simply a
fixed-interest investment, and is similar to a term
deposit with a bank.
We will cover this in more detail when we look
at interest-bearing investments later.
The second way you can invest with companies
is to own shares in a company. If you own shares of
a company, then you own part of the company, and
part of all the assets that the company owns.