# One Last Attempt At Understanding \[investment\] Risk
**URL:** https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711
**Category:** Great Debates
**Created:** [April 8, 2011, 8:12pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711 "2011-04-08T20:12:36Z")
**Posts on this page:** 20
**Page:** 5
### Author:  [@PBear42](https://boards.straightdope.com/u/PBear42)
#### Post date: [April 10, 2011, 7:00am UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/81 "2011-04-10T07:00:55Z")
**emacknight** , you’re being willfully obtuse. If a renter is creating value the same as labor, he has the same claim. We don’t thnk so, and so we don’t.
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 10, 2011, 7:02am UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/82 "2011-04-10T07:02:07Z")
I guess what I’m trying to say is that _karmically_ Timmy will profit from his investment.
And without an investment Timmy breaks even: a place to live in exchange for cash. Just like a dishwasher that spends a year working and gets a salary.
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 10, 2011, 7:04am UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/83 "2011-04-10T07:04:41Z")
> [@PBear42](#):
>
> **emacknight** , you’re being willfully obtuse. If a renter is creating value the same as labor, he has the same claim. We don’t thnk so, and so we don’t.
What claim? I’m not sure what you’re trying to say.
Also, are you under the impression that labour always creates value?
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 10, 2011, 7:18am UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/84 "2011-04-10T07:18:19Z")
Actually, we know exactly how much value Timmy adds to the equation: $12,000.
But what we can’t always determine is how much he costs.
With an employee, you know exactly how much they cost because it’s their salary, but have a much harder time measuring the value they add.
If Timmy was hired for $12,000 to decorate the condo, how would we go about measuring the value added to the final sale?
---
### Author:  [@Frylock](https://boards.straightdope.com/u/Frylock)
#### Post date: [April 10, 2011, 1:14pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/85 "2011-04-10T13:14:47Z")
> [@emacknight](#):
>
> Yeah, well, I told my wife I was going to, uh, damn, I give up.
>
> Wait, did your wife look over at you and raise one eyebrow? She’s probably wondering why you’d right that if you knew the result…
>
> Except you then said we can’t be free if we aren’t independently wealthy. Others have alluded to the fact that a dishwasher isn’t exactly free when there are no other jobs available and his bills are past due. And let’s not forget he’s living pay cheque to pay cheque, for some reason everyone in this country is living hand to mouth.
When I wrote that, I thought we were talking about a hypothetical independently wealthy dishwasher.
If we’re talking about actual dishwashers, you’re right that I don’t think they’re free concerning these agreements, (hence it’s really no agreement at all), and I doubt they’d see the profit-and-loss-sharing agreement as a good idea anyway.
But if we’re talking about utopia-land where the dishwasher is independently wealthy, then there’s no prior question as to what a “fair agreement” would be–they’re free to enter into whatever agreement they like, and then that agreement _determines_ what’s fair.
---
### Author:  [@Ruminator](https://boards.straightdope.com/u/Ruminator)
#### Post date: [April 10, 2011, 1:40pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/86 "2011-04-10T13:40:49Z")
> [@Frylock](#):
>
> If we’re talking about actual dishwashers, you’re right that I don’t think they’re free concerning these agreements, (hence it’s really no agreement at all), and I doubt they’d see the profit-and-loss-sharing agreement as a good idea anyway.
Your idea of “_agreements_” and what’s a true “_free-will agreement_” vs a “_fake agreement_” is an unusable distinction.
We are all “unfree” in the sense that you’re using it. The restaurant owner is also not “free” because if he truly had the wealth he wanted, he’d be playing golf or tanning on the beach instead of stressing out over the messy business of running a restaurant and dealing with hiring/firing employees! The restaurant owner is also a “slave” to agreements because he has bills to pay like his mortgage and tuition for his kids’ college educations. Since he doesn’t have the wealth to do _nothing_, he also has to be _employed_ by – his restaurant patrons. Because of this, he has to be “unfree” in entering into agreements to hire workers. It’s a unfair to all of humanity that we are all slaves to each other. There’s virtually nobody exempt from this except for maybe the Pope in Vatican or pockets of tribesman living off the land in South America or Africa.
And I look at my friend’s daughters situation. The nanny of my friend’s girls is not “free” because she needs to be employed. The nanny would rather not babysit a bunch of snotty kids. My friend is also not free because if was wealthy, he’d buy his own private island and let his girls run around naked in the breeze without a care in the world. Because he doesn’t have that option, he has to live in suburbia like the rest of us and – _against his free will_ – hire a nanny to help keep a watchful eye over the safety of his girls.
Since we are _all_ not “free” to enter into our own ideas of perfectly favorable agreements, that means virtually every agreement on the planet is unfair. Your distinction of “unfair agreements” adds no insight to the discussion.
---
### Author:  [@Ruminator](https://boards.straightdope.com/u/Ruminator)
#### Post date: [April 10, 2011, 1:55pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/87 "2011-04-10T13:55:24Z")
> [@PBear42](#):
>
> \*\*, what you’re missing is that the labor view of value isn’t really based on risk. It’s based on value. In a restaurant, many pieces come together to create value, both capital and labor.
There is no reasonable intellectual method to shift emphasis from financial risk inputs (a concrete _quantitative_ measure) to one of “value” (a vague _qualitative_ feeling). Also, it’s hypocrisy because this very idea isn’t even genuinely supported by the workers’ who want to use it as justification for more profits. Those same workers don’t want to share their paycheck with any of the people (bus drivers that transport them, teachers that taught them high school math, etc) that help create “value” such that they can work for income. It’s a pointless concept for distributing profits.
> [@](#):
>
> In the real estate hypothetical posited here, it’s nigh on impossible to posit that the renter contributes value in the same way.
That’s not true.
The renter(s) represent “occupancy” which in turns represents “market viability” or real-estate “liquidity.”
Some prospective buyers of the property may actually live in the condo. On the other hand, some buyers may prefer to see it as a cash income stream. Even the buyers who intend to be “owner-occupied” may value the income stream aspect highly because some unexpected events may affect their situation and they’re counting on the ability to move out of the condo and convert it to a rental if they can’t quickly sell it.
---
### Author:  [@Frylock](https://boards.straightdope.com/u/Frylock)
#### Post date: [April 10, 2011, 2:35pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/88 "2011-04-10T14:35:36Z")
> [@Ruminator](#):
>
> Your idea of “_agreements_” and what’s a true “_free-will agreement_” vs a “_fake agreement_” is an unusable distinction.
>
> We are all “unfree” in the sense that you’re using it. The restaurant owner is also not “free” because if he truly had the wealth he wanted,
You didn’t read my post (#66) very carefully. Being free, on the argument I gave there, requires that one have the wealth sufficient to not be forced into decisions by threats of hunger, lack of security, lack of shelter, etc. Nothing in there about “having the wealth you want” or being able to refrain from working and just go play golf whenever you want.
When come back read post.
---
### Author:  [@Ruminator](https://boards.straightdope.com/u/Ruminator)
#### Post date: [April 10, 2011, 2:54pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/89 "2011-04-10T14:54:03Z")
> [@Frylock](#):
>
> You didn’t read my post (#66) very carefully. Being free, on the argument I gave there, requires that one have the wealth sufficient to not be forced into decisions by threats of hunger, lack of security, lack of shelter, etc.
The vast majority are not in such dire circumstances that they’d be literally thrown to the wolves. I grew up about as poor as anybody’s sob story and NOBODY is that close to the death of society neglect you’re describing unless they are mentally ill.
If one is living in suburbia, living paycheck-to-paycheck, and then such paychecks suddenly stop, such person (or family) can downsize by moving in with a relative or switch to lower cost housing. If lower cost housing is still too much, there’s govt assisted subsidized housing (this is where I grew up as a child.) As far as basic sustenance of calories, there are food stamps if you have children, charities, shelters, etc. if you’re an adult. There are legal options for food somewhere. Nobody is that close to “visceral” death because they refuse the $x/hour as a dishwasher. Yes, each lower option is worse in terms of standard-of-living, dignity, etc but it’s certainly not that “visceral” aspect you claim is happening.
In India, you see people literally sleeping in cardboard boxes in the medians of major freeways. You don’t have that in America. No masses of unemployed dishwashers are huddled in the median of U.S. Interstate-10 trying to keep the rain out with a folded magazine over their head.
Because there no unemployed dishwashers picking dead cockroaches out of the garbage for their next meal, does that then mean they are actually more “free” than you give them credit for?
---
### Author:  [@Frylock](https://boards.straightdope.com/u/Frylock)
#### Post date: [April 10, 2011, 6:08pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/90 "2011-04-10T18:08:43Z")
> [@Ruminator](#):
>
> The vast majority are not in such dire circumstances that they’d be literally thrown to the wolves. I grew up about as poor as anybody’s sob story and NOBODY is that close to the death of society neglect you’re describing unless they are mentally ill.
>
> If one is living in suburbia, living paycheck-to-paycheck, and then such paychecks suddenly stop, such person (or family) can downsize by moving in with a relative or switch to lower cost housing. If lower cost housing is still too much, there’s govt assisted subsidized housing (this is where I grew up as a child.) As far as basic sustenance of calories, there are food stamps if you have children, charities, shelters, etc. if you’re an adult. There are legal options for food somewhere. Nobody is that close to “visceral” death because they refuse the $x/hour as a dishwasher. Yes, each lower option is worse in terms of standard-of-living, dignity, etc but it’s certainly not that “visceral” aspect you claim is happening.
>
> In India, you see people literally sleeping in cardboard boxes in the medians of major freeways. You don’t have that in America. No masses of unemployed dishwashers are huddled in the median of U.S. Interstate-10 trying to keep the rain out with a folded magazine over their head.
>
> Because there no unemployed dishwashers picking dead cockroaches out of the garbage for their next meal, does that then mean they are actually more “free” than you give them credit for?
You’re right; I was exaggerating.
---
### Author:  [@Borzo](https://boards.straightdope.com/u/Borzo)
#### Post date: [April 11, 2011, 4:34pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/91 "2011-04-11T16:34:44Z")
If Timmy builds a new kitchen for 5k, and raises the property value by 10k, he should (morally) get a share of the increase, but he (legally) won’t. His contract removes the value he adds from the equation.
If Timmy trashes the places, however, and causes 10k damages, he is not immune to sharing that loss. His rental contract forces him take a loss if he adds negative value, yet he sees none of the increase if he adds positive value. Fair isn’t it?
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 11, 2011, 4:53pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/92 "2011-04-11T16:53:28Z")
> [@Borzo](#):
>
> If Timmy builds a new kitchen for 5k, and raises the property value by 10k, he should (morally) get a share of the increase, but he (legally) won’t. His contract removes the value he adds from the equation.
>
> If Timmy trashes the places, however, and causes 10k damages, he is not immune to sharing that loss. His rental contract forces him take a loss if he adds negative value, yet he sees none of the increase if he adds positive value. Fair isn’t it?
The real point is that remodeling the kitchen is an investment risk that may or may not pay off. Timmy or Johny could sink $10k into the kitchen only to lose potential buyers, or to simply have no impact on the selling price.
So tell me this: Since you used the word “fair.” Consider Scenario 2 where the property value falls. But add in the situation where Timmy puts $10k into a kitchen. Now how do you resolve the outcome?
Johny is on the hook for an $18k loss which everyone agrees on, does he also have to pay an additional $10k to Timmy for his involvement?
That’s the “risk” element I feel people on this board are missing despite their ability to cut and paste a dictionary definition of the term.
It’s easy to look at the profits and combine them with the potential value added to establish a “fair” distribution of rewards. [kitchen remodeled] & [house value goes up]
It’s also easy to look at the losses and combine them with negative actions to establish a “fair” distribution of loss. [apartment is trashed] & [house value goes down]
It’s the two cases in between that people seem to ignore:
[kitchen remodeled] & [house value goes down] -\> does Timmy share in the loss?
[apartment is trashed] & [house value goes up] -\> can Timmy avoid paying damages?
---
### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [April 11, 2011, 5:06pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/93 "2011-04-11T17:06:12Z")
> [@emacknight](#):
>
> There it is, surprised it took so long. Supposing that Timmy does something that helps Johny, morally Tommy deserves a little kick back. And yes, I understood it perfectly because it makes perfect logical sense.
>
> My initial problem with it is that it’s all upside. The scenario you present involves that dirty word risk. Timmy took risk, and made an investment in the property. That risk/investment may or may not pay off.
Sure. Homeowners know that swimming pools sometimes decrease property values. If he was renting a house, and put in a swimming pool, he shouldn’t be disturbed if the landlord doesn’t give him a piece of the nonexistent increase in value. But here it did increase the value.
> [@](#):
>
> So then, if we grant that morally Timmy should deserve some of the profit, we need to look at **Scenario 2** and say that morally Timmy should cover some of the loss.
Quite possibly.
> [@](#):
>
> What you are describing is a lot like **Frylock’s** thread. Timmy invests a year of his time and $5000 cash renovating the kitchen, and that increases the property value by $10,000. We can take this one of two ways:
>
> \*The first is to make Timmy a skilled tradesman. He doesn’t get to claim any of the profits from the first year (because it wasn’t agreed on), but he does get to increase is personal value. He can say to Johny, “my skills made you an extra $10,000. If you let me live free in your next condo I can do even better.” Timmy can also add that to his portfolio and shop around, he has proven himself skilled improving in a $100,000 condo, imagine what he could do in a $200,000 condo. Last year Timmy was a virtual unknown without any experience, now he’s an accomplished decorator type person.
If he is indeed a skilled tradesman, this is his n+1st job, and showing it around will not increase his value much. Interns and RAs don’t get paid much because their compensation comes in the form of experience, just like in the old apprentice system. If I were looking for a job, and the other hand, and someone tried to lowball me because of the exposure I’d get, I’d tell them, “screw you, I’m famous enough already. Show me the money.”
> [@](#):
>
> \*The other way is to consider that Timmy improved the property he was living in. He was paying $1000 a month to live in a $100,000 condo. His improvements made it a $110,000, but his rent stayed the same. The investment he made paid off in the form of better rent to property ratio.
So, if Tim trashes the place, and reduces the value, he should ask for a reduction in rent because it is a dump? A new definition of _chutzbah_? Tim does get some benefit from living in a place he likes better, true. But what if Johnny evicts him, from making change probably not allowed in his lease, and pockets the increased value? Legally okay, no doubt, but is that morally okay?
---
### Author:  [@Borzo](https://boards.straightdope.com/u/Borzo)
#### Post date: [April 11, 2011, 5:17pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/94 "2011-04-11T17:17:50Z")
If the tenant increases the value, the (morally) fair thing to do would be to pay him a cut. How much? If they didn’t sign a contract, who knows. How do you extract what portion of the increased value is due to the tenant’s improvements?
If the tenant paints the kitchen and bathroom puke green, and lines the walls with neon orange vinyl - thus decreasing it’s resale value - the (morally) fair thing would be to have him share the loss.
In this case, and in the case of the restaurant’s chef, it’s not impossible (though far from easy) to link their contributions to a rise in overall value. If a chef contributes to a 100k growth, or if the tenant’s improvements raise the value by 10k, they should see a cut of that raise. But what if the overall value falls, as in your example? Well… that’s why most people come to agreements - no sane carpenter would sink 5k into a rental unit knowing they’ll never see a return if the owner chooses to boot them out next month.
But whether or not the property rises or falls is irrelevant to the moral question. If the tenant adds 10k to property value (even if the overall value falls over this time), he should get something for it. If he ruins the apartment and reduces it’s value by 10k, he’s should do something to compensate the owner for it.
I understand this is an ocean’s worth of grey areas, but that’s besides the point.
Also, for the record: I think you mix up the words “risk” and “ownership” excessively, thus making your points difficult to argue, and difficult to defend. This combining of the two terms is totally unnecessary, and just leads to posters on this board (including yourself) getting overly frustrated.
Our legal and social system protects owners, and rewards/punishes owners for the risks they take. The risks of non-owners are much less protected, and this is what many people have problems with.
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 11, 2011, 5:57pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/95 "2011-04-11T17:57:05Z")
> [@Borzo](#):
>
> If the tenant increases the value, the (morally) fair thing to do would be to pay him a cut. How much? If they didn’t sign a contract, who knows. How do you extract what portion of the increased value is due to the tenant’s improvements?
>
> If the tenant paints the kitchen and bathroom puke green, and lines the walls with neon orange vinyl - thus decreasing it’s resale value - the (morally) fair thing would be to have him share the loss.
Like I said, those two cases are easy and near universally agreed to.
> [@Borzo](#):
>
> But whether or not the property rises or falls is irrelevant to the moral question. If the tenant adds 10k to property value (even if the overall value falls over this time), he should get something for it.
This is the question I’m seeking to answer. Why should Timmy get a return on his investment (the kitchen) when Johny is taking a loss on his (the house)? Why should Timmy take a loss when Johny makes a gain?
If you don’t like my use of the word risk, explain what ownership Timmy has when he renovates the kitchen. Does Timmy now own the kitchen? Or $10k worth of equity in the house? Answering that will go a long way to resolving this.
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 11, 2011, 6:11pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/96 "2011-04-11T18:11:36Z")
> [@Voyager](#):
>
> So, if Tim trashes the place, and reduces the value, he should ask for a reduction in rent because it is a dump? A new definition of _chutzbah_? Tim does get some benefit from living in a place he likes better, true. But what if Johnny evicts him, from making change probably not allowed in his lease, and pockets the increased value? Legally okay, no doubt, but is that morally okay?
Take the word “trashes” out because it creates an obvious bias to the question, instead consider depreciation.
If the property is allowed to degrade with time, the house value will go down. I looked at a lot of foreclosed properties in my search, and the results were always the same: lawn in tatters overrun with weeds; carpets stained and dingy; walls scuffed and dirty. Most of it minor stuff, but all the result of neglect.
When that happens to a property the amount of you can rent it for also falls.
The flip side of this is that when an owner comes in and makes improvements, he can often rent it for more.
Rent is a factor of market forces: So if the property degrades and Timmy leaves, he can get a better place for $1000 per month, meanwhile Johny will be forced to lower his rent. If the property is improved Johny could evict Timmy and replace him with a more lucrative tenant.
That’s what happens to the dishwasher as well. Market forces will dictate compensation, if he can’t find a higher paying job, he’s stuck making his current wage. If dozens of equally qualified candidates are willing to work for less, why wouldn’t the owner fire him and replace him with a cheaper alternative? Sounds harsh when said that way, but if the owner can’t find anyone else to do the job the dishwasher can start demanding more salary “or he’ll walk.”
This also applies to the skilled tradesman, but not until year 2 (n+1 jobs), like I said before his compensation will always lag his skills. If he feels he deserves more of the pie he is free to shop around. He will get paid what his reputation has earned him. If no one else is willing to pay more, that’s his worth. We see this all the time with pro-athletes and Hollywood movie stars. They don’t get paid until AFTER they’ve proven themselves. Note also that they continue to earn after their skills degrade.
---
### Author:  [@Borzo](https://boards.straightdope.com/u/Borzo)
#### Post date: [April 11, 2011, 6:18pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/97 "2011-04-11T18:18:42Z")
> [@emacknight](#):
>
> This is the question I’m seeking to answer. Why should Timmy get a return on his investment (the kitchen) when Johny is taking a loss on his (the house)? Why should Timmy take a loss when Johny makes a gain?
>
> If you don’t like my use of the word risk, explain what ownership Timmy has when he renovates the kitchen. Does Timmy now own the kitchen? Or $10k worth of equity in the house? Answering that will go a long way to resolving this.
Did Timmy contribute to this loss? Or did he help mitigate it? If the landlord loses 20k \*with \*the tenants +10k in improvements, how much more would he have lost without those improvements? 30k? In this case the tenant just saved the landlord 10k! He should get something for that.
How much does Timmy own? Who knows. I bought a fridge for the last apartment I lived in, since theirs was garbage. Did I leave it behind? Obviously not, I took it with me when I left! The concern of course, is that I had to put back the crappy fridge that was originally there. These things are obviously complicated. If the chef creates a new set of new dishes that increases the restaurants revenue by 50%… what does he own? I don’t know. Are those dishes his? Can he take his recipe with him, or does he have to leave it behind when he goes? Does the restaurant now own his recipes?
There’s a lot of grey area here, and I see it as kinda silly to project a black/white paradigm onto it.
---
### Author:  [@emacknight](https://boards.straightdope.com/u/emacknight)
#### Post date: [April 11, 2011, 6:35pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/98 "2011-04-11T18:35:38Z")
> [@Borzo](#):
>
> Did Timmy contribute to this loss? Or did he help mitigate it? If the landlord loses 20k \*with \*the tenants +10k in improvements, how much more would he have lost without those improvements? 30k? In this case the tenant just saved the landlord 10k! He should get something for that.
See, now that’s a good point. What happens here is that we don’t have concrete values, all we know is that $5k was put into the kitchen, and that the house value changed. How do we assess the value added or subtracted.
Earlier it was suggested that the tenant adds no value but that and employee does. I think this is wrong. The issue is that we know exactly what value the tenant adds (rent) but it’s a lot harder to assess the value added by an employee–while we know the cost (salary).
> [@Borzo](#):
>
> There’s a lot of grey area here, and I see it as kinda silly to project a black/white paradigm onto it.
It’s not silly though. The point of the exercise is to sort out what’s going on in the black and white scenarios. The answers to the OP were obvious and easy. When Timmy made renovations again it was obvious in the case when the value goes up. All this based on a rational and thought out position.
But all too often we’re faced with the gray area. A union boss threatens strike because the works deserves more of the profits. We’ve got dozens of debates on this topic and they all play out the same: either you side with workers and assume they deserve more. Or you side with management and think the workers are compensated based on market forces. Logic and reason go out the window.
And when I read those threads I see comments like,
“doesn’t the cashier take risk, isn’t her time worth something.”
“the factory worker invested 15 years with the company, he deserves something.”
If you read through the Understanding Risk thread you’ll see all sorts of heart felt pleas to get the dishwasher more of the profits. None of them based on any sort of reason or logic.
Read through this and you’ll see it stated that the renter adds no value but labour does. Again, based on emotion instead of reason.
We need to feel bad about one of the players, then work backwards from that to justify giving him more. And heavy forbid we imply that perhaps Timmy/labour contributed to the loss.
---
### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [April 11, 2011, 7:03pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/99 "2011-04-11T19:03:25Z")
> [@emacknight](#):
>
> Take the word “trashes” out because it creates an obvious bias to the question, instead consider depreciation.
>
> If the property is allowed to degrade with time, the house value will go down. I looked at a lot of foreclosed properties in my search, and the results were always the same: lawn in tatters overrun with weeds; carpets stained and dingy; walls scuffed and dirty. Most of it minor stuff, but all the result of neglect.
>
> When that happens to a property the amount of you can rent it for also falls.
>
> The flip side of this is that when an owner comes in and makes improvements, he can often rent it for more.
>
> Rent is a factor of market forces: So if the property degrades and Timmy leaves, he can get a better place for $1000 per month, meanwhile Johny will be forced to lower his rent. If the property is improved Johny could evict Timmy and replace him with a more lucrative tenant.
>
> That’s what happens to the dishwasher as well. Market forces will dictate compensation, if he can’t find a higher paying job, he’s stuck making his current wage. If dozens of equally qualified candidates are willing to work for less, why wouldn’t the owner fire him and replace him with a cheaper alternative? Sounds harsh when said that way, but if the owner can’t find anyone else to do the job the dishwasher can start demanding more salary “or he’ll walk.”
>
> This also applies to the skilled tradesman, but not until year 2 (n+1 jobs), like I said before his compensation will always lag his skills. If he feels he deserves more of the pie he is free to shop around. He will get paid what his reputation has earned him. If no one else is willing to pay more, that’s his worth. We see this all the time with pro-athletes and Hollywood movie stars. They don’t get paid until AFTER they’ve proven themselves. Note also that they continue to earn after their skills degrade.
You are not using “depreciation” quite correctly here. Depreciation is the loss of value of equipment due to a natural wearout cycle. Real estate doesn’t depreciate, otherwise I’d be able to buy up a bunch of castles for a song.
But for the most part I agree. Chutzbah on the landlord side would involve him charging Tim more rent because the renovations Tim did out of his own pocket make the property more valuable.
That salaries are set by the market is clear. If some disease of the plate killed off most of the dishwashers in the world, or made dishwashing so hazardous that only brave and foolhardy souls would do it, the salary of a dishwasher would skyrocket. And the market is exactly why employers give a piece of the profit to chefs and other employees who are either hard to find or who directly contribute to profitability. If they did not, they would not get the best in the marketplace. The market means that ideologues who say “my investment, my profit, mine, mine, mine” either go broke or are stuck with noncompetitive and thus low returning businesses.
---
### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [April 11, 2011, 7:09pm UTC](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711/100 "2011-04-11T19:09:43Z")
> [@Borzo](#):
>
> If the chef creates a new set of new dishes that increases the restaurants revenue by 50%… what does he own? I don’t know. Are those dishes his? Can he take his recipe with him, or does he have to leave it behind when he goes? Does the restaurant now own his recipes?
>
> There’s a lot of grey area here, and I see it as kinda silly to project a black/white paradigm onto it.
That one is fairly simple. The recipes are intellectual property, and the contract determines who owns them. I don’t know about kitchens, but in the computer business when you get employed you sign something saying that inventions you make on company time are the property of the company. They may or may not give you anything for them. If the owner is smart he’d get the chef to sign something to say that the restaurant has the right to all dishes the chef creates, royalty free, at least, so if the chef leaves the restaurant could keep serving signature dishes. But we’d need an IP lawyer in here to give the details of protecting recipes. I would guess they would be either trade secrets or patentable.
[Previous page](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711.md?page=4)
[Next page](https://boards.straightdope.com/t/one-last-attempt-at-understanding-investment-risk/577711.md?page=6)