Poor choice of words or just ignorance?

I was skimming through the local media this morning and one particular title caught my eye.  There was a weird word in the title for the subject matter. I did  an internet search for similar titles.

These are few of the results (you can do your own search and let me know what you find, after reading the post):

– Bankers bet on SME’s, even though they have the highest credit risk

Barclay’s analyst bet on RON to strengthen on the next 6 months

“Governor Isarescu at Galati: bet on the RON if you want to win”

Romanian banks bet on mortgages

I do not want to discuss the outcome of those predictions. What interests me is the choice of the word: bet (pariaza in Romanian).  Is this really what we should do with our savings ? Is this really what banks should do with our savings? Should not the word have been: INVEST?

What do I know. Let’s get a dictionary. This is what Webster Dictionary has to say about:

“2bet

verb

bet also bet·tedbet·ting

Definition of BET

transitive verb
1
a : to stake on the outcome of an issue or the performance of a contestant b : to be able to be sure that —usually used in the expression you bet <you bet I’ll be there>
2
a : to maintain with or as if with a bet b : to make a bet with c : to make a bet on
intransitive verb
: to lay a bet

First Known Use of BET

1597

Related to BET

Synonyms: gamble, go, lay, play, put, stake, wager

And this is about

“2invest

verb

Definition of INVEST

transitive verb
1
: to commit (money) in order to earn a financial return
2
: to make use of for future benefits or advantages <invested her time wisely>
3
: to involve or engage especially emotionally <were deeply invested in their children’s lives>
intransitive verb
: to make an investment
in·vest·able adjective
in·ves·tor noun

Origin of INVEST

Italian investireto clothe, invest money, from Latin, to clothe

First Known Use: 1613″
After reading these definitions it clear to me that the article titles were right about the choice of the word bet. There has been very little investment in the Romanian economic and a whole lot of betting.  Then, there should not be a surprise the current state of both the Romanian economy and its banking sector.
Finally, here is the article that got me started today. The same bank has bet on Alt A mortgages in the US, owned a big chunk of Greek debt and still owns big chunks of Spanish and Italian debt. So, how do you think their latest bet will work out?

17 thoughts on “Poor choice of words or just ignorance?

  1. I didn’t want to comment, as you will again hate me, but I will do it :)).

    I think you confuse betting with speculation. They are not the same thing. Betting is part of both the investing process and the speculation process. When you do either of them, you bet on something. The difference between investing and speculation is that when you invest your focus goes on the regular cash-flows that you could cash in in the future, from your investment. You bet that in the future your money will provide you with certain levels of cash-inflows. When you speculate, your focus goes mostly on capital appreciation, you bet that the price will increase, that you buy low and you will sell high, and this is what you mostly search for. In the first approach, you bet that something will create value for you, in the second you bet that the price will create value for you. But you always make a bet, even when investing. After you consider you invested your money on something, betting on a certain value creation for you, the future could come and tell you your bet was wrong. So betting is actually in everything and everywhere, because there’s no safety on earth, in anything🙂.

    You are right regarding the level of foreign speculation in our country, as the money went mostly in buildings that were sold at huge prices, taking into account the state of the Romanian economy, mostly if we talk about flats. But this is speculation, not betting. If the money would have went to building new factories and agriculture of course it would have been another story, as by default pushing money in a factory is a longer-term process, it requires a longer pay-back period, doesn’t matter if you search for this from the beginning or not🙂.

    1. I do not confuse them. Betting implies speculation by the definition. Investing does not. My only point is that the way we portray business decisions in Romania has much more of a betting/speculation flavor than an investment. When a business “bets” on a certain program than it should not have any problem if it looses. My other point is that I am uncomfortable to hear that a bank “bets” its investors’ money. Finally, we should not be encouraged by our policy makers to bet on anything. The downside is ours alone.
      I put betting, gamble and speculation on the same page but on a different one than investing.

      1. I don’t agree with you. You implicitly assume that investing is something sure. Which is wrong. Anything lacking safety is a bet. The distinction is made at another level.

        Is correct to say that they have a speculation flavor, but not a betting flavor. And that is not right to engage people’s money in pure speculative bets, like the increasing of houses prices, or like the increasing of gold prices, for instance. Totally agree. These prices are about perception much more than valuation, so a bank should be more careful when using people’s money to bet on the perception of the uneducated people, and on finding more and more stupid people in the market, to accept a further higher and higher price. For instance, is much harder to find a stupid guy to buy a factory at a very overvalued price, and toi find these stupid guys like everyday, as a factory is easier to value, and is more about facts than perception. But 90% of the population would pay a very overvalued price for an apartment, or for gold, without any questions or rationing. This is where banks make a mistake. They bet on human stupidity, using our money. Not on value creation.

        If this is what you say, I agree. But I don’t agree with confusing the terms and with insulating the idea that investment is something safe, there’s no bet in it.

        Is even riskier than speculation, because usually it implies a longer term, and time is the biggest enemy of a poor investment🙂. It implies less liquidity, less substitute options, usually, and this brings more risk into question. This is why when a country is not competitive in the international trade, because of costs or an improper currency risk, people prefer buildings and real-estate speculation, to factories. The risk is lower than with a factory.

        For instance, you invest in a factory producing a good, but then in 3 years people start using more a substitute, a new one, for your good. You betted that the people would use your good in the next 20 years, but this proved to be wrong🙂. It’s nothing about speculation, but your bet still proved to be wrong.

        Gambling and speculation is almost the same, bot not betting. Betting is the essence of every decision we take in life🙂

        wrong. There’s no speculation in this, but only a wrong bet.

      2. No. It is the intention that makes the difference. Both, betting and investment, imply risk taking. But the intention for an investment is to obtain a positive return. Betting implies, gambling, speculation a 50/50 chance. It has a known end, most of the time. Investment differs from project to project.
        As an example, Steve Jobs invested in Apple, Ipod, Ipad etc he did not bet on a project. The same goes for Facebook, Google etc. Also, banks might have explained to their shareholders that they invested in Greek bonds after they have been downgraded to Default levels. And maybe that is why they believed.
        My problem was just that in the Romanian media the verb to bet (a paria) substitutes the verb to invest. I wanted to point out that the media was wrong. But then, after the end result, the bad investments looked more and more like silly bets.

        I will give you one more example for you to look at in your own time: manslaughter vs. involuntary manslaughter. It is the intention that counts.
        Maybe, my post was not clear enough.

  2. Ah, and regarding that bank and their poor betting, either speculation of investment. I’ve seen a research showing that some banks they usually make stupid bets, and they usually loose more money than other comparative peers in quite the same bets. This shows a poor quality management and business model, for the entire organization. They will be tented to make systemic mistakes, almost all the time, without even know it, unless they change both of them. Including changing the people and changing the way they hire people, as it could prove to bring inside people unable to make quite the right bets in quite the right moment, and placing the company as the turkey in the market, regularly. You can be wrong 50% of the times, but not 80%.🙂

  3. Of course intention counts, this is what I said also, that the intention to buy low and sell high is a speculative bet, and the intention to make something create value for you, in time, to cash-in some regular cash flows, is an investment bet. But all of them are bets.

    I doesn’t matter if the chance is 10/90 50/50 90/10, you still have uncertainty, and only because mathematically you have 90% chance for something to happen, it doesn’t actually mean that the 10% couldn’t materialize, so you have uncertainty at the same level. This is an optical illusion. If you have 99 red balls in an urn, and 1 black, who could guarantee to you that at the first extraction you won’t pull out the black one? Nobody and nothing. So you make a bet.You say: because there are 99 red and only 1 black, I have much more chances to pull put a red one. This is a bet, and it may prove wrong🙂.

    It;s really easy now, at the end of the road, to judge Steve Jobs work. But let’s go back in the beginning. In the beginning he made a bet people will prefer to use a touch screen, for their mobile phones, and better read the newspaper from their mobile phones, and so on. The future shown his bet was right. Just like in the prior decade he made a bet that people would prefer to buy an operating system together with the same hardware producer, and Bill gates made the bet that people care much more about the hardware than the operating system, so he preferred only to crate an operating system and sell it to the hardware producers. Steve Jobs was wrong, he made the wrong bet, Bill Gates was right.

    By default, is really hard to insulate the idea that a producer is speculating, buy default they usually invest their money.

    Again, you are right regarding the media being unable to differentiate between certain phenomenons and proper educate the people.

    1. Last try, mainly to clarify my point and not to convince you that you are wrong. That is never my aim, as I hope my readers have their own opinions. But also they need common sense and strong arguments to support them, not just conventional wisdom or hearsay.
      Companies investing in technology have better productivity. The historical relationship between the two is positive.
      People investing on own education have higher wages. The historical relationship between the two is positive.
      Over centuries, countries that invested in developing own capital, property rights, and sound money have done better than those that “gambled” their future generations’ money on short term projects.
      I agree it is hard to perfectly isolate the idea of investing from gambling (maybe on purpose). But, you forget one crucial part from the definition of betting/gambling: that it involves the notion of a game. Indeed life is full of decisions, but not all of them are gambling/betting. Some of them are investments. Investing in a friendship, investing time in a hobby, or investing your own money and time in developing a project (like a blog for example). They all carry risks, the blog not obvious ones unless you count the number of people you piss-off as a risk, but they are not a game and certainly they are not gambling.
      Here is a great book on risk: http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=against+the+gods&x=0&y=0

      Finally, to me the world is in this state today because it acted more as a gambler than an investor. And this exactly what is happening in EU today, betting on short term solutions instead of investing on the real one for the long term.

      1. @Florin Citu
        “But, you forget one crucial part from the definition of betting/gambling: that it involves the notion of a game.

        Exactly. You don’t need to be too careful about where you invest your money. It’s a game, a bet anyway.

        There’s a degree of risk embedded in anything you do. And yet this doesn’t mean that you can’t get better at it.

        Basically, the media is promoting the idea that you don’t have to be too careful with your money. It’s all just a game anyway.

        On the same token, in the media I also read that players “jucatori” who control “care controleaza” certain companies. It’s like saying that these people have all the power.

        It doesn’t say that these CEOs/entrepreneurs actually help creating valuable products and services. That’s the actual reason why they stay and thrive in business.

        These people don’t actually control anything. They just run their businesses. Their employees control their businesses by what they do every day. Indeed, they can tell their employees what to do but their employees do the actual work.

  4. We have a completely different view upon risk and risk taking, and this is why we can’t agree🙂. Actually, innovation, introducing new technology, is the greatest gambles of all. Entrepreneurship is a great gamble. Actually, most of what is behind the humanity evolution is a greater gamble than 50/50, when you toss a coin🙂. But, again, it’s only my view, the way I understand business and risk taking.

    1. The evolution is not one big chance game. Even chaos is deterministic. But above all, leaving it all to chance is just too easy an explanation and too dismissive of human kind. From my part I speak from experience as both short term gambler and investor.

      1. @Florin Citu
        “The evolution is not one big chance game. Even chaos is deterministic.Even chaos is deterministic.”

        Really? Then tell me where I’m going to die. So I can avoid that place forever.😉

        There’s a difference between what can be known and what can be or is known by your mind.

        Risk is not something that exists by itself. Risk is something that depends on the existence of your mind. It doesn’t matter if chaos can be determined if the human mind doesn’t have and understand all the data. Also, technology is not yet at that level.

        @Lavinia
        “Entrepreneurship is a great gamble.”
        I don’t buy it. Yes, there’s a certain level of risk. But most people have similar ways of behaving. And you can also test the market and make a profit to a smaller before you go big.

        For example, selling is all about the idea of understanding your customer really well and giving to them what they want. There are millions of pages online where you can find what they complain about. Or you can simply ask them about their needs, frustrations and desires.

        So if you get selling, you are half way there. You just need products to sell. These 2 are the main 2 pillars on which everything rests.

  5. In the media example, they are not talking about risk, bet vs investment etc. They are talking about responsibility and who’s to blame if something goes wrong.

    *****

    When you bet on something, it means that you don’t have a clue what you are doing. Betting is like flipping a coin and choosing based on the coin flip result.

    In the media, I suppose that they use the term “bet” so the reader knows that he will not be held responsible for the outcome.

    Let’s say that he bets on the RON and then he loses money. Who will he blame for the bad outcome? Answer: the RON, BNR, Isarescu, the European debt crisis, the market etc — everyone but himself.

    Most people spend a lot of time and energy trying to avoid being blamed for their actions, results and the impact of their actions. In all of us, there’s the tendency to give up responsibility and to let another person, group, institution, power base to do it for us.

  6. @Adrian

    As I can remember, is the second time we end up the same point.

    Yes, in entrepreneurship everything is easy, and logical, and clear, in the books, in our dreams, in our imagination. Why aren’t you one, than? Why most of the people prefer a monthly wage, than?

    1. @Lavinia

      I agree that it’s a gamble when you start your first business. That’s because you don’t know what you are doing. And I also agree that to start a new business by bringing something new comes with a degree of uncertainty.

      But if you start 10 businesses, only 1 or 2 have to succeed and you will still be in a better shape than most people. Most people in Romania earn a few tens of RON per day. It’s not that hard to beat that.

      “Why aren’t you one, than?”
      I am one actually.

      “Why most of the people prefer a monthly wage, than?”
      Many reasons(the following are overall reasons, they vary from person to person):
      * fear of failure, success
      * fear of change
      * the employee mindset
      * the false sense of security that comes from looking at what others in their social circle are doing; and most of the are employed
      * caring about what their neighbors think about them
      * not willing to upset their relatives
      * fearing that this decision to get on their own will bring unforeseen consequences
      * fearing that all will fail and they will have to take the blame
      * not willing to work hard and long hours
      * liking the way things are
      * not really understanding how the free market works
      * not willing to make the sacrifice required especially in the beginning
      * fearing to lose what their well paid job, if they have one
      There are many more.

  7. Florin.

    Let’s take it in another way.

    So, according to your own definition:

    “to stake on the outcome of an issue or the performance of a contestant”

    … betting means to search for an outcome of an issue, or for the performance of a contestant. This means that from 1, or 2, or N options, you stake on that one you consider to provide you with a certain outcome, or the one you consider to be the best performing.

    What is your goal when you invest?

    I will end my intervention here. And I will say that if in the conventional wisdom, as you name it, because this is actually the conventional wisdom, a term got it all wrong, completely misunderstood, and confused with another term, this is the problem of the majority, it doesn’t mean they are right, just because they are more in numbers to believe that.

    A actually betting can’t be compared either with investment, either with speculation, as betting is the process that is at the root of both of them. We have a distinction between speculation and investing, or, of if you wish: gambling at the casino, speculating, and investing. But not betting and investing. To bet is the root of all our decisions in life, disregarding our intention. Is choosing from more options. You make a bet when from A and B you consider the A to have a better outcome than B, in a particular context, either a speculative context, either an investment context. Again, if the term got it all wrong in our mentality, the problem is with the majority’s mentality, not with the term itself, and, of course, not with betting in itself🙂.

    1. Lavinia, the act of betting or gambling is not the search of an outcome. In a simplest form one takes a bet to prove a point or just to play a game. Depending on the stakes involved (the amount ) people are more or less willing to “play” or bet. Here is another example, one may think of entering in a trial against a big corporation as a bet. Has his/her own view on the odds, what is there to win and what is there to lose. The outcome is binary, win or lose.

      Now, back to investment. This is the true act of searching an outcome, a positive one mind you. The outcome of an investment decision is not just win or lose. Investment, as I said before has many forms, and it will involve one’s own preferences.

      Getting back to where all this started. As I said in the post, looking back at the outcome of the Romanian economy and the financial sector it looks to me that when some major decisions were taken the intent was not to invest, it was to gamble. Also, when a Governor talks about betting on a currency I think it would be more appropriate to use words like save or invest.

      It is very easy to go through life assuming that all is just gambling. Every decision you take has only a win or lose outcome. In this way you would not need to do anything to self-improve or improve the world around you. I just do not see the world this way. Every decision you take might in your view have only a win or lose outcome, but it has an unknown number of implications for the world around you. The role of investment is to make one, or a system or a country, flexible enough to resist negative shocks from too many bad outcomes from decisions taken every day by everyone in this world. One more example. Today’s crisis is nothing compared to the negative shock of the WWII. There was a guy who gambled with his country’s future. However, centuries of development due to investment made that country strong enough not to disappear. Furthermore, after few years of investment that country was once again on the path to becoming one of the most productive countries in the world. And today this country is the least affected by the current crisis. In my view it is the outcome of investment in education, in technology, in health etc.

      There is one thing you forget, investment requires vision while gambling just a pair of cards or dice.

  8. Nice discussion here and very comprehensive. Beside the core aspects of this debate about bets, investments and speculations we should be more cautious regarding Romanian media. Many times the reason of this kind of issues is neither the poor choice of words nor ignorance but simply the foolishness of journalists. Let me show you something tragicomical from ZF-known as the best local financial newspaper. At this link we can read the following statement: http://www.zf.ro/zf-24/socgen-nu-mai-pariaza-pe-deprecierea-leului-si-isi-inchide-pozitile-lungi-de-vanzare-contra-monedelor-din-regiune-4046789/
    “Societe Generale (SocGen), prezenta si pe piata romaneasca prin BRD, recomanda inchiderea pozitiilor lungi de pe piata interbancara, de vanzare de euro contra leu, forint si zlot, adoptand o atitudine neutra in raport cu aceste valute, informeaza Reuters. […] Pozitiile lungi de pe piata valutara reprezinta intrarea jucatorilor pe contracte de vanzare, pe o perioada mai lunga de timp, a unei monede contra alteia, mizand pe deprecierea uneia dintre ele.” WOW!🙂 . And this is the original headline from Reuters in same day: “PRAGUE, March 13 (Reuters) – Societe Generale recommends closing long euro positions against Hungary’s forint, the Polish zloty and the Romanian leu, saying it has adopted a neutral stance on currencies of the central and eastern European region.” Beyond the poor translation of this phrase it is stunning the next explanation about what means long positions in the FX market.🙂

    PS Since in the currencies trading we can look at a short position as a long inverted currencies position we conclude by journalist’s logic that everyone is an investor in the FX market. Shame on you, evil speculators!🙂🙂🙂

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