Direct Investing is the Deal (Ron Goforth Commentary)

“Investing” is increasingly defined in the public’s mind by the intense focus of the media on the stock market. To far too many people, “investing” has come to mean almost exclusively the putting of money into the stock market. Unfortunately, this definition of investing is as incomplete as that for “technology,” which became erroneously limited in the public perception to the Internet, dot-coms, IT, and computers.

There are also certain pressures exclusively directed to this mode of “investing” that derive from the broker community – those very folk whose income is transaction-driven and who therefore are very interested in promoting large numbers of buy-sell orders.

How is this kind of “investing” different from other forms of “gambling?” Stock market investors will generally deny any similarities, claiming that the study of investment-related data makes it not a game of chance but an application of intelligence and forethought.

But poker players count cards, study the faces at the table, and become experts in reading body language. People who play the ponies study the race sheets. All are attempting to predict the future and hoping for big returns.

I have heard stock market players rationalize their own gaming of the market in much the same way that the gambler rationalizes his or her activities. But among stock market investors, there is also the reinforcing phenomenon of attributing to oneself certain good motives: motives such as helping the economy and being an active participant in the capitalist system.

There is a game going on, of course, because the market is a mechanism for the redistribution of wealth, from “investors” to brokers if nowhere else. Still, it sounds almost like gamblers and bookies, does it not?

I am not really at all hostile to the stock market, certainly not to our system of capitalism (in its theory at least), and most certainly not to the utility of the profit motive. But I would like to encourage an alternative to playing the market — namely, real, direct investing in support of enterprise development. This is a different animal altogether. To invest in new enterprise development frequently requires thinking outside of one’s comfort zone. It requires diligence of a different kind. And most of all, it requires objectivity, realism, and patience.

Although investing in enterprise development may not provide instantaneous gratification, the long-term outcomes can be satisfying indeed.

Furthermore, the risks associated with direct investing in support of enterprise development can be reduced. For tech-centric enterprises, the question of whether or not a technology will work can be objectively addressed (and that is the business focus of Beta-Rubicon). Since technology is going to be the main driver of economic development, this is a vital concern.

A new business model is about to emerge in the Texas financial community that will provide a quantified and cost-effective risk reduction strategy for investors. We hope that this program will also become available in Arkansas—and sooner rather than later. And while these factors can indeed reduce risk, they will not necessarily reduce the anxiety associated with new delvings into the unfamiliar: that will still take a modicum of faith in the future.

What Northwest Arkansas needs now is reasoned and substantive investments of patient money to support technology-centric, knowledge-based enterprise development. If you do not believe me, believe the Milken Institute, the Kauffman Foundation and the results of economic development studies supported by Rockefeller Foundation, the Northwest Arkansas Council, and others.

Study the matter, then act.

(R.R. (Ron) Goforth, Ph.D., is the President of Beta-Rubicon Inc., an independent technology assessment and due diligence services firm in Fayetteville. He may be reached at www.beta-rubicon.com.)