To start, I'm a complete business noobie. I hardly know anything about money, finances, accounting, depressions, inflation, etc. Other subjects come naturally to me and are easy to understand, but when it comes to business, there is a mental block that is hard to overcome. The basics of business make sense to me, like how to run a store, keeping inventory, etc., but when it comes to deeper subjects, like financial bubbles, fiat currencies, buying commodities, etc., my brain pretty much poops out and dies.

However, I've read a lot about investing in silver and gold these days, and that sounds like a smart idea. The only problem is that I have no idea what investments are, how they work, why you would want to invest in something and not another, etc. The list could really go on and on.

Now, instead of reading a book that would probably be boring and give me a headache, I come to you, my fellow forum-goers, and I ask you all if you could explain to me how investments work, and why I should buy gold and silver. I like learning things by talking to people - much more so than reading a book on the subject. Of course, I don't mind reading a book once I've got a grasp on a subject, but I don't have a grasp on this subject, which is why I ask you for your help.

I know a few of you have quite the handle on this subject, and I'm sure I'm not the only one that is completely befuddled by investing. I would be very appreciative if you could help me/us. Thank you.

The most basic thing everyone who wants to make money in this economy should understand is that we live in an artificially created boom-bust economy.  The booms are driven by loans to consumers for the most part, but also to business and government.  Those loans drive consumption, which creates jobs and increases prices, which creates higher wages and capital gains.  All this is wonderful, until the "magic money" dries up.  

At some point, consumers use up most of their credit.  So, they start spending less money.  This lowers consumption, which creates unemployment and decreases prices, which creates lower wages and capital gains.  All this is painful, until the next boom comes!  

Some industries are effected by this more than others.  Trucking is an excellent indicator of where the economy is at on the boom bust cycle.  Hence, the industries lack of overtime pay and reliance on unemployment benefits.  Truckers can go from 70 hours a week to 7 hours a week in a very short time.  Healthcare, on the other hand, seems far less effected by the ups and downs.  This can have a tremendous impact on how people view their work.  

The stock market, of course, is always anticipating the next boom or bust.  That pretty much drives volatility in the market, as I understand it.  There are other factors, but in general, that seems to be the main thing.  

So, if you can track the progress of the economy in its boom bust cycle, then you can buy stocks, for example, in the bust and sell them in the boom.  I wouldn't call that investing though.  It's really just a bet on where the economy is headed.  

As I understand it, most people make money in the bond market, by buying and selling bonds, not by carrying the note.  So, it's the same rule as with stocks:  buy low and sell high.  Although, bonds tend to be up when stocks are down and vice versa.  But, I've never taken advantage of that.  

Gold is a commodity.  Naturally, gold, like most commodities will never drop to zero, like stocks can.  On the other hand, it could lose a lot of its present value.  Gold appears to be extremely over inflated in its price, because people with money around the world are afraid of losing their money.  So, to preserve it, they've put some of it in gold, which has driven up the price to spectacular levels.  However, without that fear driven buying, gold prices would plummet to catastrophically low levels, because gold buying is mostly for electronics and Jєωelry, not savings.  This situation of fear based buying is temporary.  I'm not claiming to know where gold is headed next.  All I'm saying is the price of gold is where it is at, not because of some actual use for gold, but simply because folks have lost a lot of faith in regular forms of savings.  However, if they ever get that faith back or if the fed racks up interest rates, I think gold prices are gonna go way, way down, really fast.  

If you look back at the 1980s and you understood that gold bubble and were paying attention as conditions lead to this current one, then you at least had the knowledge to buy into this latest run up on gold prices.  However, if you aren't that knowledgeable, you'd probably do well to just learn from this latest run up and study it, in preparation for the next one.  

Renzo, good information for Alex117, and everything you reference is due to fractional reserve banking.
However, I must respectfully and heartily disagree re: your opinion of gold as investment.  I've researched this for many years, using innumerable sources pro and con, before I put one single dime into it.  
I won't bore you or the reader further on the topic, we'll agree to disagree, as is common re: a discussion on gold.  For this thread, it's good for Alex117 to hear differing opinions about investment alternatives.
But I do advise him to DYODD.

Quote from: Renzo

Buying a share of Apple at 535 and selling it for 590 makes me a 10 percent profit, but I didn't produce anything or contribute anything to that company.

You did do something.  You provided liquidity.  Because of you a person who needed the cash at 535 was able to obtain the cash from you and a person who wished to buy Apple Inc. shares at 590 was able to buy them because you were willing to sell them.

You also risked your cash for that period whether it was 1 day or 6 months on Apple stock and in effect made them [contributed] a loan so they could operate their company and pay their workers, keep their cashflow sound and their borrowing costs low, because their credit is good.  You could have made a loss on your investment.  In effect the shareholder is risking his cash interest free to the share issuer for the period he holds the shares.  That is a contribution.

And by buying shares and showing confidence in a corporations future business plan you allow them to raise more cash for expansion of their operations, employ more Chinamen, employing shop workers in the US High Street and you are also supporting a huge secondary industry of people who make cases, accessories, chargers and all sorts of other stuff because if it was not for all the iCrap sold, there would be no multi-billion dollar accessories market either.

Yeah, you would think that's how it works from the gobbly-gook where told about the economy, but apparently not.  In the example I used, Apple doesn't get a penny of that money.  You said it yourself, the money goes to the buyers and the sellers of stocks.  If I buy a share of Apple stock, Apple Corp doesn't own it, I do.  My money goes to pay for it and whoever buys it from my broker, when I sell it is the one who's paying me for it, through my broker, when I sell it.  

When a private company goes "public," and offers stocks for sale, the bank issues those stocks and sets the opening price.  The proceeds from the initial sale go to raising money for the company, which it doesn't have to pay back (free money).  The board members are required to hold (free of charge) a certain number of "prefferred" shares (preferred stock means, they get their money if the company goes bust, before any other shareholders, but not bondholders).  The board members are required to hold their shares for a certain period of time, before they can sell any of them and then they can only sell so much of them.  This is to ensure that they have an incentive to protect the share price and not just the interests of the company (talk about a perverse motive)!  

Of course, over time the board members are usually issued more shares, you know, just to keep them "honest."  Which naturally, dilutes the share price for everybody who owns the stock (the money's got to come from someplace).  

The reality of stock market "investing" is that the overwhelming majority of people who buy stocks, lose money.  It's the "suckers" who pay for the game and they bring the money in from their own savings or they borrow it.  Brokers offer relatively high interest, short term loans called, "buying on margin," to play the market with.  

The Stock Market has rendered the term "investing" a meaningless term.  

Alex, you rock!  Thank you for sharing this, I think...  I'll probable be up half the night investigating.

This is the system we have.  Every economic system has its faults and inefficiencies.  Agree stock markets are a suckers game especially since GS and others are manipulating prices with HFT and making daily profits without fail.  Clearly that is hard evidence of a rigged market.

Nevertheless you have to earn you daily bread and that involves being a part of the economic order.  Money is debt so by using cash you're supporting a system predicated on usury.

Last few hundred years have been pretty prosperous for westerners.  I travel the world by jet, drive around in warm cars and eat nice food out of season.  We are living longer too.

Spiritually we are in a mess but your cannot lay that at the feet of how the economy functions.  People have to take responsibility for their abandonment of the faith.  You cannot blame rigged markets for them using contraceptives and having extra marital affairs.

That makes sense.  On the other hand, there may be a connection between immorality at the level of big business and big government and sɛҳuąƖ immorality.  Look at it this way, if our leaders wanted to justify economic immorality on their own parts to their own people, then corrupting the morals of their own people, perhaps through some other more common vice, seems like it would help them achieve that goal.  sɛҳuąƖ immorality seems like a very common vice, that's easily grave and something that can be repeated over and over again, on a daily basis and that has become extremely easy to encourage.   I heard somewhere, that the average american male thinks about sex every 13 seconds. That seems like it would be enough to significantly damage a person's general capacity for moral reasoning.