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Economy:Basic

lastmod 2025-08-28created 2025-08-0318 edits

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Economy Lecture 1: Money supply, why we invest

  • The money supply increases -> if my wealth doesn't grow at the pace of the money supply, I gradually become poorer (indicator: inflation rate) -> investing is not a choice but a duty
  • Why does the amount of money increase?
  • The 3 faucets money flows from -> banks, the Bank of Korea, foreign countries
  • What is debt (a loan)? -> Where does debt come from? (banks)
    • Example of a village's debt (3 people who go to the bank and borrow 100 million won)
    • Do banks lend even without deposits?
    • The moment a bank makes a loan, the amount of money circulating in the market increases.
  • The government goes to the Bank of Korea with government bonds and borrows money from the market
    • To control the money in the market
  • Foreign currency
    • Foreign investment, etc.
    • Foreign exchange market
    • When the exchange rate falls, the value of the won goes up. Is that good? -> Exporters dislike it
  • Why does the money supply increase?
    • Bank loans
    • Government budget shortfalls
    • Inflow of foreign currency
  • So will the amount of money keep increasing in the future?
  • What happens if the money supply doesn't increase?
    • Money must increase as much as the economy grows.
      • When money increases -> goods and services increase -> to consume the increased goods and services -> money must increase further (repeat)
      • In the end, money increases as much as the economy grows.
    • If money doesn't increase, the poor are hit harder than the rich.
    • For capitalism to succeed, the amount of money must increase.
  • In the end, the money supply will eventually increase. -> The value of money falls -> asset prices rise accordingly -> if my money doesn't grow by as much -> I can become poorer.
  • That's why you have to invest.
  • Is debt bad?

Economy Lecture 2: Risk, how to win at investing

  • So where should I invest? -> If I knew that...
  • There are a few principles about what to do.
  • (Bluntly) stocks vs apartments (and bank deposits?)
    • Invested from 1980: stocks x18, apartments x5~8
    • Invested from 1990: stocks x3, apartments x3~5
    • Investment performance is decided just by having invested early.
    • The characteristics of the asset matter
      • For apartments, the timing of investment has little relation to returns
      • For stocks, the timing of investment has a strong relation to returns
    • Why volatility differs by asset -> it reflects investors' psychology.
      • Apartments -> by nature, can't be bought and sold immediately
        • Rather than "when should I buy?", you should focus on "what should I buy?"
      • Stocks -> by nature, can be bought and sold immediately
        • Rather than "what should I buy?", you should focus on "when should I buy?"
    • It helps to know the characteristics of both assets well.
    • Stocks are volatile, so -> you may buy high (anxiety), and sell low (fear)
    • You often see "I've held this apartment for 10 years...", vs you rarely see "I've held this stock for 10 years..."
  • Someone looked into stocks and...
    • Stocks rise when the economy is good,
    • Stocks fall when the economy is bad.
    • Let's buy and sell stocks at those times -> what's the indicator for that? The unemployment rate. -> Tested both ways and there wasn't much difference
    • In the end, with stocks it's best to hold good stocks for a long time.
    • But the volatility is high, so it's hard to endure.
  • High volatility itself means high risk.
    • Starting with 100 million: +20% -> -10% -> +20% -> -10% gives 116.64 million won
    • Starting with 100 million: +50% -> -40% -> +50% -> -40% gives 81 million won
  • The core of investing: what is risk?
  • Risk (Risk) vs danger (Danger)
  • Increase the number of tries.
    • Coin / heads +500 million, tails -1 billion -> Danger
    • Coin / heads +1 billion, tails -500 million -> ???? The 50% odds are too big, so it's Danger.
    • Coin / heads +10 million, tails -5 million ~~ let's toss it 100 times -> (law of large numbers) -> it's Risk.
    • Let's apply this to stocks too. -> Don't buy a lot at once; split it into many purchases. -> A way to create the law of large numbers
    • How insurance companies make money -> they sign up many people. (This feels like increasing the number of tries)
  • Increase the time.
    • Lengthen the investment period.
  • What is a portfolio
    • It's hard to tell what a good stock is.
    • That's why people say to invest in indexes.
    • You need to consider whether the investment approach suits you.
      • Can you check earnings/research information like a full-time investor? -> Is it an investment approach anyone can do?
    • If you invest in a single stock -> you're in big trouble if that one fails
    • Mix your investments evenly. (diversifying risk)
    • Stocks/real estate/bonds/gold/exchange rates, etc.
    • There's also the saying "hold cash"
      • If you have no cash at all -> you become psychologically anxious -> and may make bad choices.
      • At good investment timing caused by high volatility -> when an opportunity suddenly comes -> you can seize it.

Economy Lecture 3: Interest rates and exchange rates, the push-and-pull dynamics of money

  • What is an interest rate?
    • Can money be exchanged for money?
    • What's the ratio when exchanging present money vs future money? -> Banks call this a "deposit", and the ratio "interest".
    • The exchange ratio when trading present money for future money is called the "interest rate".
    • This market is called the bond market.
    • Why a base rate is set
      • Kind of like telling you not to wait until you're shivering in the cold to put on clothes, or until you're dripping with sweat in the heat to take them off
  • Exchange rates
    • The exchange ratio between different countries' money
      • Why exchange rates change (there are too many reasons, but the main ones)
        1. Differences in prices (the price of a given item differs by country)
        2. Rise in currency value due to resource development
        3. Increased overseas investment
        4. Other countries' foreign exchange markets
        5. Interest rates

Other

  • What do banks mean by performance?

See also

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