Contrast Private Investment as a vehicle for investment earnings with that of stocks. On the Lender Risk Table, stocks fall on the far left of the table because it is a no collateral investment. Investing in stocks is so commonplace that most people never stop to realize that there is really no collateral in a stock purchase. There is nothing tangible about a stock. When you purchase a stock all you get is a piece of paper stating you own a stock whose value could plunge to zero within minutes.
Unlike Private Investment in deeds of trust secured by real estate that is 100% insured against casualty loss, stocks are completely uninsured.
When a stock is purchased, it is always purchased at the current market value. When the real estate investor purchases property for investment purposes, it is always purchased below market value – thus, making the collateral for the lender more valuable than the investment.
Stocks are always purchased completely on speculation. Being that they are purchased at market value there is no cushion. At the time of purchase the stock has a 50% chance of being worth less than the purchase price just moments after the purchase. Therefore, return on investment is always an unknown factor. In contrast, the return and the terms on Private Investment in deeds of trust secured by real estate, are known factors before the investment is made. There is no guesswork to Private Investment in deeds of trust. See the table below for side-by-side comparison of Stocks to Private Investment
Table: Stocks Vs. Private Investment in Deeds of Trust
Comparison of Stocks Vs. Real Estate Private Investment
|Completely Unsecured||Collateral is Fully Secured|
|Completely Uninsured||Collateral is Fully Insured|
|Purchased at Market Price||Purchased Below Market Value|
|Returns are Unknown||Returns are Fixed and Agreed upon|
|Stock Certificate Intangible||Tangible Asset|