Free Lunch

AAA

DEFINITION of 'Free Lunch'

A situation in which a good or service is received at no cost, with the true cost of the good or service ultimately borne by some party, which may even include the recipient. A "free lunch" was often offered during the 1800s to bar patrons who ordered drinks as a way of bringing in more business, though in modern times the term is used to describe anything purportedly received for free. From this, "free lunch" became an investment slang term referring to unlimited riskless profits.



INVESTOPEDIA EXPLAINS 'Free Lunch'

The phrase "there's no such thing as a free lunch" is commonly used to describe situations in which investors are not able to consistently make large profits without bearing the risk of a potential loss.


For example, a free breakfast offered by a hotel to entice consumers to stay the night is not free, as the hotel room is still being paid for. Likewise, while investors can continue to make money in a bull market, there is an underlying cost - risk.

RELATED TERMS
  1. Public Good

    A product that one individual can consume without reducing its ...
  2. Tragedy Of The Commons

    An economic problem in which every individual tries to reap the ...
  3. Common Resource

    A resource, such as water or pasture, that provides users with ...
  4. Diner's Dilemma

    A game-theory situation with several players. Similar to a prisoner's ...
  5. Freeriding

    1. An illegal practice in which an underwriting syndicate member ...
  6. Free Rider Problem

    1. In economics, the free rider problem refers to a situation ...
RELATED FAQS
  1. How do you calculate shareholder equity?

    Shareholders' equity is listed on a company's balance sheet and measures its net worth. A company's shareholders' equity ... Read Full Answer >>
  2. What is the formula for calculating beta?

    Beta is a measure used in fundamental analysis to determine the volatility of an asset or portfolio in relation to the overall ... Read Full Answer >>
  3. How are rights distributed in a rights offering?

    In a rights offering, rights are distributed to shareholders based on the number of shares they already own. What Is a Rights ... Read Full Answer >>
  4. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  5. Is there a way to include intangible assets in book-to-market ratio calculations?

    The book-to-market ratio is used in fundamental analysis to identify whether a company's securities are overvalued or undervalued. ... Read Full Answer >>
  6. What types of corporations would be expected to have higher growth rates than more ...

    Investors looking for corporations with higher-than-average growth rates have several factors to consider. Although younger ... Read Full Answer >>
Related Articles
  1. Taxes

    Winning The Jackpot: Dream Or Financial Nightmare?

    Don't assume all prizes are free. Many come with enough costs to render them worthless.
  2. Fundamental Analysis

    Standard Of Living Vs. Quality Of Life

    What is the difference between a standard of living and quality of life? Find out in this breakdown.
  3. Personal Finance

    Are We Losing The Middle Class?

    Find out where your income and lifestyle put you compared to the national average.
  4. Investing Basics

    What are the Pink Sheets?

    Pink Sheets is a listing of over-the-counter stocks that are not listed on any established exchange such as the New York Stock Exchange or the NASDAQ.
  5. Investing Basics

    Explaining Idiosyncratic Risk

    Idiosyncratic risk is the risk inherent in a particular investment due to the unique characteristics of that investment.
  6. Investing

    Prospering In The Next Bear Market: Here's How

    Prepare to survive, and even prosper, in the impending bear market, by considering and putting into action the following four strategies.
  7. Stock Analysis

    3 Stocks To Buy and Hold For the Rest of 2015

    One of the dominant themes to consider for 2015 is the normalization of monetary policy as the Fed raises interest rates.
  8. Economics

    Greece Isn’t The Only Problem U.S. Stocks Face

    Both stocks and bonds fell last week, due to several factors dampening investor sentiment. The most obvious one is the evolving situation in Greece.
  9. Investing Basics

    What Does Spot Price Mean?

    Spot price is the current price at which a security may be bought or sold.
  10. Investing Basics

    How Does a Dividend Reinvestment Plan Work?

    A dividend reinvestment plan allows investors to use their dividends to purchase more shares of the corporation’s stock, rather than receiving payment.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!