"An investment is a speculation that has gone wrong." -- George Soros, legendary speculator

"An investment is simply a gamble in which you've managed to tilt the odds in your favor." -- Peter Lynch, legendary investor

By all accounts, Warren Buffett is the most successful and revered investor on the planet. Certainly a net worth measured in billions of dollars attracts attention. But a large part of his legend depends on his long-term approach to investing. Buffett's ideal investment time frame is . . . forever.

In an age of real-time quotes and active day-trading in securities, Buffett's method is not just atypical. It's an affront to virtually all of those who make money the old-fashioned way: by speculating.

The classic Buffett approach is to find a growth company with sound fundamentals, strong management, and good long-term prospects; accumulate a significant stake; take a seat on the board; and then play as active a role as the company requires.

In the ideal case, Buffett just stays quiet and holds onto his shares. He may stay quiet and buy more shares. But if management runs into trouble, he intervenes. He's part owner of the company, so he intends to make himself useful. If that fails or the story changes significantly, he gets out.

BARRON'S FINANCE AND INVESTMENT HANDBOOK, a staple reference book, defines an investment as "the use of capital to make more money." Certainly, Buffett has done a pretty terrific job of that. And his long-term, buy-and-hold approach has had a significant influence on many other investors, including David and Tom Gardner, the brothers behind THE MOTLEY FOOL, the most popular financial forum in cyberspace.

Still, Buffett remains an anomaly.

While roughly as successful as Buffett, George Soros has taken a very different approach. At his best, Soros is a high-stakes speculator. In his only partly wry comment, an investment is simply the name you give to a speculation that turns sour, leaving you stuck with a position you hope will correct itself in time.

By and large, Soros attends to and profits from market psychology, from the play of valuation. Rather than making bets on value, he tends to make bets against the market's valuations, with his most spectacular gambles coming in currency trading, the antithesis of investing in businesses.

Peter Lynch, on the other hand, has developed and promulgated a method much closer to Buffett's approach, one nearly diametrically opposed to that of Soros. He searches for individual companies, and generally ignores markets. He looks for value, for growth, for management---and for stocks not yet discovered by Wall Street.

Still, it's revealing that Lynch defines investing as simply a form of gambling in which one exerts some smarts. It's a view closer to Soros' that one might have expected. In his instant classic ONE UP ON WALL STREET (1989), Lynch compared stock investing to stud poker. The successful players calculate and recalculate their chances as the hand unfolds, he wrote. "Consistent winners raise their bet as their position strengthens, and they exit the game when the odds are against them."

There's no shame in dumping a stock, and really no incentive not to if the future doesn't show promise. Lynch clearly likes thinking about companies and looking for value, but his bottom line is to make money in the market.

The Gardners are more concisely and perhaps even more decisively interested in turning capital into more money. Lynch takes ten pages to explain when to sell a stock. In THE MOTLEY FOOL INVESTMENT GUIDE (1996), the Gardners manage to do the same thing in, well, one sentence: "When you find a better place for your money, put it there."

What's their criterion for "better"? The Fools say that when you find an exciting new stock, you should make room for it in your portfolio by "shedding whichever of your holdings looks to be most fully valued (i.e., appears to have the least room for more near-term appreciation)." Again, within the Fools' terms of what makes for a good stock to invest in, the bottom line is very much the bottom line.

Though always prepared to buy-and-hold, they remain, in theory and practice, at least equally committed to buying and selling. The Gardners encourage long-term investing rather than active trading simply because they think it pays off better for individual investors who don't have the time to follow the market's daily price swings.

Certainly these are all generalizations. Soros makes Lynchian plays on small growth companies, just as he conducts more intimate, Buffett-style dances with established, large-cap companies he'd like to influence. And the Gardners can show vestiges of Buffett-like patience with an American Online even while they profess a contrarian, Foolish delight in the wisdom of sometimes shorting stocks. Still, Soros, Lynch, and the Gardners are all linked by this primary commitment to turning capital into more money. The goal, for all of them, is to take calculated, well-informed gambles that pay off so you can keep doing the same.

Buffett is hardly opposed to this goal. On the other hand, his genuinely long-term approach suggests something more. Stocks are not simply a vehicle for increasing one's capital. Both theoretically and legally, stocks signify an ownership position in a company. But investing as a form of ownership seems distinctly different from investing as a form of intelligent gambling.

It's clearly absurd to feel any kind of commitment to the hand you're dealt in a game of stud poker. It's merely a vehicle to bet on---or not. But what kind of commitment should you be ready to make to a business you have have an ownership stake in, a business that employs thousands of people like yourself and influences other businesses and many different communities?

What, in fact, does ownership really mean? When we talk about investing, do we really believe stockholders are owners, with both rights and responsibilities, or should we simply agree that the concept of ownership is mostly a myth when it comes to investing in stocks?

When even the sensible mainstream of Fooldom seems linked in a chain of motive and metaphor to king speculators like Soros, perhaps we should just admit that we really all just want to get rich and that the moral distinctions between the methods we use are ultimately trivial.

An investment is the use of capital to make more money. Add to that some idea of a free market, and you have an abstract outline for capitalism. On the other hand, we know that markets are never free in fact. They are of necessity elaborately constructed social and legal arrangements that, whether we believe it or not, simply reflect our values rather than some inherent natural state of economic relations. Despite what free market libertarians tell us, government regulations do not prevent markets from being "really" free; rather, they allow markets to be as free as they are, to exist in the forms that we recognize as markets.

Within these markets, we already accept a notion of investing that entails more than making more money. In fact, I'd like to suggest that our best investments necessarily involve something closer to a genuine sense of ownership, in part because they directly connect us to the well-being of the communities we live in.

Think about one of Lynch's key pieces of advice: consider buying a house before you buy any stocks. Almost everyone can make a good investment on a house, he says. For one thing, people spend more time considering the purchase because they typically plan to live in it. They know how to "poke around from the attic to the basement and ask the right questions," Lynch says, because unlike investing in stocks, these skills are more frequently handed down because they directly matter to the quality of people's lives.

Most people know how to look for good neighborhoods, to inquire about schools and public services, to focus on location, and to look for areas with reasonable taxes relative to the benefits received. The very fact that people choose a house for the long-term (on average, about seven years) gives the investment a sense of real consequence, and thus improves the quality of the investor's decision making.

Also, the housing market has been constructed to promote both home ownership and some price stability. As with stocks, an investor needs to pay down only a fraction of the real cost of a home. But your costs going forward can be set in stone through a fixed-rate mortgage. As Lynch points out, you don't get a margin call on your loan if your house drops in value. Homeowners are likely to be less conscious of such things as well because the value of one's house doesn't run across the tape on CNBC every day.

Moreover, the tax system encourages home ownership as a sensible lifelong savings method by allowing homeowners to pump money from one investment to the next, and then enjoy a windfall exemption at the end. The tax deduction on mortgage interest further encourages homeownership.

Demand certainly plays a role in housing prices, and some say the days of rapid price appreciation are over. Economically hard-hit areas have even see price erosion. But in general, home prices have at least kept up with inflation and, during some periods, done much better in part because the federal government has consistently encouraged homeownership through such tax incentives.

As recently as last year, President Clinton re-affirmed a national commitment to individual home ownership, the modern equivalent of the family farm. The administration hopes to increase the number of families owning homes by eight million in the next four years (up to 67.5% of the population, from around 65% today). This new push is designed to make up for the 1.5% drop in the number of homeowners during the 1980s, the first significant decline after 46 years of increased home ownership.

The tax system reflects the fact that Americans don't believe stock ownership as currently practiced leads to the same benefits to the community as homeownership does. Without tax deductions on margin interest or reductions on so-called long-term capital gains, equity investors just don't have it as good as homeowners. On the other hand, stock investors don't pay annual taxes on their stock holdings the way homeowners pay property taxes.

To take only one example, property owners in the city of Atlanta, in Georgia's Fulton County, annually pay roughly 2% of their property's assessed value in taxes. In percentage terms, rates obviously are higher in incorporated urban areas than elsewhere. Many cities, as well, have recently renewed efforts to raise assessed values so that they match realistic market values.

What this means is that the cost of owning a home is also high: on a house valued at $150,000, the owner would pay $3,000 in taxes every year (before deducting for homestead exemption or other factors, such as the owner's age). The money feeds into the community. In Atlanta, 43% goes to city schools; 29% pays for state and county operating expenses; 13% pays for city operating expenses; and the rest goes to Grady Hospital, city bonds and parks. Investing in a home, by law, requires investing in the community's present needs and future generations.

One could say that the various tax benefits of owning a home versus owning stock are simply counterbalanced by property taxes. In fact, one could say that such incentives even impede the natural course of the market and end up doing more harm than good. For instance, high city taxes tend to encourage the flight of families to area suburbs, leaving cities struggling to maintain their infrastructure and educational systems. Or one might argue that public investment is an equally laudable social goal, in that it creates jobs, and that more tax incentives to encourage it are imperative.

The key issue, though, is that we have two competing metaphors of capitalism---property and markets---that cannot be readily reconciled. Capitalism is rooted in the concept of private property, which our laws define as sacrosanct. But while individual property rights attain economic value in market economies, the concept of property cannot be easily collapsed into some easy notion of free markets.

Through zoning laws, property taxes, and incentives to promote home ownership, we readily admit that the purchase and use of property is a community concern. And because we insist upon both the benefits and responsibilities of owning property, particularly a home, the market for property is about something more than turning capital into more money. As a result, prices are more stable. Such investing is less about speculating and more about investing as genuine ownership.

What I've tried to suggest is that it's still quite foreign for us to see investing in stocks as something more than a form of calculated gambling principally because we've failed to imagine how investing can be more than an attempt to turn capital into more money. And because our outlook is myopic, we continue to accept a certain construction of equity markets that actually ensures that they will remain so volatile that we must continue to see them as the realm of calculated gambling at best.

When was the last time someone shorted your house? How many put options traded today on your condominium? When was the last time some hedge fund took a 10% stake in your home without you finding out for weeks?

On the other hand, when was the last time you took your PTA skills to a shareholder's meeting and demanded a curriculum change? When have you taken enough interest in the employees' morale at the company whose shares you own that you pushed for a wage increase the way you might for the teachers at the school your daughter attends?

Home ownership involves something more than investing in stocks because it's a form of investment where commitment to the community becomes an integral part of one's individual capital appreciation. In the coming weeks, Rogue is going to look at how investing in equities might be significantly changed by some changes in markets that would discourage speculating and encourage a form of investing closer to ownership than gambling. We're particularly interested in how online communication might be used to foster such changes.

To take only one example, consider the fact that property transactions are part of the public record. When you buy a home, for example, the title is recorded at the local clerk's office and is accessible to anyone who asks. In fact, some areas are beginning to make this information available on the Internet. Processing takes time. In Atlanta, the clerk's office for Fulton County Superior Court is currently running about two months behind.

But the process is delayed by attorneys, paper shifting, and inadequate staffing by the county. Since investors in equities must have accounts with accredited brokers and these brokers must be linked by computer to the markets, the information on equity transactions is, in theory, easily updated on a daily basis. If your purchase of a home is part of the public record, why should your purchase of stock be any different? In turn, why shouldn't you know exactly who owns what stake---and at what entry prices---in the company you invest in?

These are some of the questions Rogue is interested in asking since such changes seem to be a prerequisite to reconstructing equities markets in ways that enhance our community objectives. And since you are part of that community, we hope to hear from you too.

-- Louis Corrigan (RgeSeymour)

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