What is the difference between speculators and investors

These are both similar activities — they involve buying assets or trading on the stock market. But the motivations for each are very different, and so are the time scales and attitudes employed. So, should you be interested in speculating with your portfolio, or stick to an investment mindset? Read on to find out. So, what is the difference between an investor and a speculator? The two are really just different approaches or attitudes towards buying stocks or other assets.

An investor is looking to purchase parts of businesses in the form of individual shares, or simply as part of a wider fund , in the hope that the company will take that investment money and use it to generate a profit.

But in general, the process is fairly slow, investors will do their research into companies and funds, choose the right opportunities for them, and then hold over a period of years. This means looking for stocks or other assets such as currency, cryptocurrency or even oil which they expect to quickly go up in price and selling them quickly to take advantage of the price shift.

There are lots of reasons why these assets have become more popular. Things like coronavirus giving casual investors more free time and money, the internet making it easier to organise, to a shift in stock market sentiment encouraging people to try and make quick, easy money using options trading essentially betting on stocks, without purchasing the underlying stock itself. Speculating is essentially gambling. He is looking at the beauty-contest aspect: will people like the stock and bid it up or not.

Focussing on the time frame or the intention takes attention away from a crucial and often forgotten part of the process: The need for someone to take you out of your transaction. I think that if your plan involves eventually selling your asset to someone else, whether that is in 8 seconds or 30 years, then you are speculating, not investing. They operate on luck, confidence, and Hugo Boss. Those things disappear in that order, but usually they have feathered their nest, not by making a profit for themselves and their clients but by the sure and simple way of taking a commission.

The only way to invest is to invest in yourself and your immediate family. That way has been lost to most, due to the discount people place on future consequences. One could go on and on, but I find it sufficient to say that no one knows what is going to happen in the future, and the farther one sttempts to speculate, the more chaotic are the predictions that any modelling used up to now have supplied.

The distinction becomes especially blurry when you consider a casino owner. It seems clear that owning a business like a casino is a long-term investment. The fact that the odds are in his favor make it seem less speculative. But then how is he any different from the speculative computer with the odds in its own favor that makes thousands of trades per day? Liquidity is the key, in my opinion, to distingusihing between investment and speculation — the source of the liquidity. If we are relying upon the contract and for example collecting the coupons and principal of a bond, the source of liquidity is the obligor under the contract.

If we are relying upon sale of the asset in a market, this is speculation. We are, after all, uncertain that the market may exist or that the price will prove satisfactory. This also delivers a time dimension and shades of grey between these — in general the longer we hold an asset the more income is non-market.

I have written a number of articles in the past year on this — happy to send them to anyone who would like to read them — drop me an email at: con. Investing is the relentless process of translating and refining tacit knowledge into a distinctive and unique investment framework or mental model that is scalable beyond one single person and adaptable in different relevant contextual situations, particularly in dealing with what we do not know.

Investors write with a framework as the north star to guide and navigate the marketplace jungle where dangerous animals, poisonous creatures and alluring sirens lurk at the corner. Speculators never bother to write. Investors care deeply about ideas and research.

Investors have an instinctive longing to weave outside our own skin some reflection of our mind. This article worthy for the students who are studying finance and for the people who are somehow connected to stock market. It gives a basic understanding of investing and speculation in a well defined manner.

I think for the most part the difference is that investing consists of investing sum X for a reasonably well-known, predictable return Y: whether Y is coupon payments from a bond, dividends from a stock, royalities from an oil well, rent from real estate. Speculation is purely price-driven, without expectation that cash or value will otherwise transfer to you from the investment.

So in that context, the vast majority of participants in the stock market, including most mutual fund and k participants, are purely speculators. A situation seemingly confusing or complex likely means you have it wrong. Truth is usually pretty simple. It is one of several semantic distinctions we have lost — including journalism vs propaganda in recent decades. As an equity buyer you do not own the retained earnings.

You have the right to sell your security and you have any dividends or yield declared for shareholders. The dividends are your return on your capital investment. No dividends, no investment. I have set this out in dozens of conversations over the past five years and written it in similar quantities of web postings. I get that the industry does not want its retail customers to get this distinction.

And many of those same customers do not want to think they are speculators, speculating on speculations. In many, unfortunately were shocked at their security value declines.

Few understand they were all in speculations. Robert, above, got it right about Buffett — he is a hypocrite investor, failing to provide anything more than a speculation to his capital suppliers. None have dared do it.

The media is part of the cool-aid! What is not to like about buying more yield for less? In the real world who ever invests would invest by considering the possibilities of all risk factors and would form a strategy at least to safe guard the principle amount and to earn a better return i.

Speculation: A part of investing, where the investors turns out to be speculators and try to dispose their investments very frequently irrespective of the situation demanded means regardless of the occurrence of the typical phases mentioned in the definition of Investing. Investments in an economy whose markets are informational and operationally efficient and with no country risk and no exchange risk would let people to be investors with not churning their investments, if not they are speculators.

I like the distinction between speculation and gambling. Gambling is when a person places a bet without knowing the odds of winning. Speculation is when a bet is placed only when the odds of winning are known. At the roulette wheel, I can perfectly calculate the odds of winning. Playing roulette is gambling; there is a percentage chance of winning and losing. Owning the casino is investment; over the long term, the house always wins and pays a dividend to its owners. Is like the psychological question: What is right or wrong?

What is ok for you, I can perfectly find it wrong. But this does not happen in real life. So, lets come back to reality, and try to survive in the cannibal jungle of finance. Regardless of how we are characterized, we commit our money into an asset e. An investor has more knowledge of the enterprise than the speculator. The investor has perhaps even made himself familiar with the products, finances, and stock behavior.

The speculator , on the other hand, might only just know the stock symbol. The investor convinces himself by the the preponderance of positive information he as learned, or concluded, about the enterprise, that if that continues it can only benefit the value of his holdings in the enterprise.

The speculator could care less about the enterprise. He or she expects that some event, preferably in the near future, e. A speculator makes decisions on a story or theory; hoping for price appreciation depreciation.

He is so convicted in his story that he often overlooks the risks. An investor is first and foremost concerned with risk or margin of safety. He makes decisions after determining the intrinsic value of an asset, and never relies on a story or hope. When a firm creates or purchases utterly new equipment for production for improving the total output within the facility, this further causes the GDP of the country to rise. There are 2 forms of investment that exist, i. Some of the popular instances are:.

Investment is one of the most critical aspects of financial planning Financial Planning Financial planning is a structured approach to understanding your current and future financial goals and then taking the necessary measures to accomplish them. Because this does not begin and end in a specific time frame, it is referred to as an ongoing process. The money earned today will not have the same value 5 years down the line apart from the intrinsic value. Hence, saving money alone will not be sufficient for achieving future financial goals.

Some of the most important reasons for an investment of money are:. Speculation does not have a precise definition but involves purchasing an asset to make profits from subsequent price change and possible sale. The speculators indulge in marketable assets that do not have a long life. The speculation involves a relatively higher level of risk and more uncertainty of returns though it can be on the same lines as an investor.

These speculators are generally trained and take action when the game of probabilities is high in their favor. They are very proud of their opinion and consider placing a high premium on that. Decisions are considered when the atmosphere is of Panic, Confusion, or high levels of optimism but still go against the flow. The probability of the opposite situation is difficult to occur, but if it does, the speculators can earn a hefty amount from that.

Still, speculators can predict a bearish phase to arrive soon and place their bets accordingly. If the bearish Bearish Bearish market refers to an opinion where the stock market is likely to go down or correct shortly. It is predicted in consideration of events that are happening or are bound to happen which would drag down the prices of the stocks in the market. Many may consider speculators as dangerous gamblers though they provide the much-required liquidity in the market, which is essential for efficiency in the market.

In certain sectors such as commodities, speculators provide substantial liquidity else the only participants would be the Food companies and the farmers who may have limited ability to invest and assume the risk. With lesser participants, the bid-ask spread would be more extensive, and harder to find a counterpart in case of trade closure. Speculation can also spike the short-term volatility and risk, thereby inflating prices and lead to asset bubbles similar to the real estate market in the USA.