The Thoroughbred business--as a business venture--can be divided into four types of activity:  racing, breeding, speculation, and investment. Although the four overlap and intertwine, they can and should be considered separately, for each offers a different set of problems and rewards. 
     Although there is nothing structural in the Thoroughbred business to keep someone from participating in all four areas, few people do. As in any other business, people do the things that they find most rewarding--emotionally and financially--and tend to specialize. 
     Before we proceed, a major caveat: Even though we may talk of the "Thoroughbred business" and "Thorough bred investments," neither meet the usual definitions of those terms. It's not unusual for one's entire "investment" in a horse to be lost, and it's difficult to make a profit in any area of the "business." 
     Nevertheless, it is possible to make not only profits but big profits by buying, breeding, and/or selling Thorough bred horses. Payoffs may be infrequent, but when they come, they can be enormous.  But no business is without risk, and few are as exciting and enjoyable as this one. 
     With that introduction, let's look at these four types of involvement, one at a time: 

Racing
     This is where you get the day-to-day action. Compared with racing, the other three areas are slow-paced. 
     Racing is expensive. Just keeping a horse in training can cost more than $20,000 a year. But the payoff can be enormous; a good horse can be worth millions of dollars to his owner. 
     Racing claiming horses brings more immediate action--you can claim a horse and be in the winner's circle two weeks later--but there's almost never a big payoff. Some people are happy just to be racing and aren't shooting for the big payoff.  Claiming horses can fill their needs perfectly. 
     But the big payoffs come from owning stakes horses, and it's extremely rare for those to come out of the claiming ranks. The only practical way to get a stakes horse is to buy him before he's raced, usually at yearling or 2-year-old sales--or breed him yourself. 
     Only about three percent of the foals born in North America will someday win a stakes race (even a small one). That means that a lot of money is going to be spent on horses that can't run, but buying untried prospects is the only way to get a top horse (except for buying an already successful horse from his owner, and that's extremely hard to do at an acceptable price). 
     It's a lot like wildcatting in the oil business. You drill 20 wells in hopes of finding one big producer. In the same way, one good stakes winner can pay for a lot of unsuccessful runners.  But you have to drill in the right places. 
     Racing is the ultimate sports adventure. It's a miniature version of owning--for example--a professional sports team. The quest for a championship with one's own personally crafted entry can be one of life's most exciting and rewarding adventures. 

Breeding
     It's much slower-paced than racing, but it's safer financially and more emotionally satisfying for many people. Basically, breeding is owning a broodmare, mating her with a stallion, and either racing or selling the resulting offspring.  Trying to produce a successful runner can be just as exhilarating as trying to own one. 
     Since the results of investment in breeding stock are more predictable than the results of investments in racing stock, breeding is a more conservative game than racing. However, "more predictable" certainly does not mean predictable to any degree approaching certainty, so there's plenty of challenge in this field. 
     Breeding does permit long-term planning in a way that racing doesn't, and it permits a buildup of equity that isn't usual in racing, so it usually appeals to a different type of person. 
     Some of the most prominent and successful Thoroughbred people both breed and race, so the two are by no means mutually exclusive. But they are quite different. 

Speculation
     This is, by definition, the purchase of a commodity with the intention of reselling at a profit, and it works in the Thoroughbred business just as it does elsewhere. 
     And, as in other businesses, the speculator had better have a sophisticated understanding of the market and substantial ability to evaluate the merchandise. 
 A speculator who possesses those attributes--or who has an advisor who does--can make substantial profits by buying weanlings and reselling them as yearlings, by buying yearlings and reselling them as 2-year-olds in training (this is the most common gambit), by buying mares and reselling them after rebreeding, and so on. 
     Again, there's nothing to prevent speculation's being combined with racing and/or breeding.  Indeed, a thoroughly professional program probably would include all three. 

Investment
     If the term "investment" means putting your money into something that is reasonably safe and will return a satisfactory profit, 
broodmares probably could accurately be called investments; racehorses surely could not. 
     Stallion shares probably come closest to meeting the usual criteria for an investment. They require very little management on the part of the investor, they offer good prospects for long-term growth, and they provide dividends along the way while the original investment is increasing in value. 

Summary:  The Thoroughbred business can be exciting and it can be profitable. But it can be extremely dangerous for the unsophisticated person. Millions and millions of dollars have been wasted by people buying without knowledge of the business. 
     Of course, it's possible to get lucky and hit the jackpot by buying a horse without knowing anything about the business, but the odds are powerfully against that happening. The only sensible way to approach the business is doing months and even years of homework before spending money, or hiring a professional advisor who will rent his expertise for a fee. 
     And even then a wise man spends a substantial amount of time checking the credentials of those who would advise him--and there are many--before entrusting his money and his aspirations to someone else. 
     The Thoroughbred business can provide pleasure and profit, but those things come most often to those who plan carefully before they spend that first dollar. 
     This survey would not be complete without some mention of the income-tax consequences of owning Thoroughbred horses. 
    The Thoroughbred business is not a tax shelter in the usual sense of the word (leveraged writeoffs and that sort of thing), but all expenses can be fully deductible and the horses themselves are depreciable, so every penny spent in the business can be good for a tax deduction. 
     It is necessary to fend off Internal Revenue Service accusations of spending money on Thoroughbreds as a hobby rather than as a business and the passive-investor rules can pose a problem, but with good bookkeeping and prudent operating procedures (a good advisor is useful in this regard, too) taxpayers hardly ever lose those battles.