An investment is far different from speculation. As said in Intelligent Investor speculator may go wrong about the market, which doesn’t harm them much. But, Investors are not supposed to be wrong during their investment because of the larger amount they put up and also the long term benefits of the investment. What is the basic difference between investment and speculation ?
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative".The term investor doesn’t apply to everyone in the market who sells or buys shares. Rather, Investing is an art only a few excel in. The word “investor” is employed for everyone in the market because the market and the media are comfortable with the common term viz., Investor. There was always been a difference between investing and speculating in the market which is not observed by many in the present day’s business. The disappearance of this differentiation or ignoring the difference is an area where focus is to be laid.
Is Investment a pure science and no speculation is involved ?
The answer is both “yes” and “no”. Yes because a thorough research is done, the stock is studied in scientifically proven methods and investments are made according to a plan and template. On the other hand, it’s a No because an investor must understand that there is always an amount of speculative factor in his common stock holdings. It is the job of the investor and his manager to keep this speculative factor to a bare minimum and to be prepared psychologically and financially to face the results that this speculative factor may generate.
So, Speculation is wrong. right ?
No, speculation is not always wrong. Complete speculation is neither illegal, immoral nor beneficial to your account. At any point of time, some speculation is always necessary in the market and it cannot be avoided anyway. As there is something called intelligent investing, there is also intelligent speculation, and there is unintelligent speculation.
A speculation turns unintelligent when
- Speculating while thinking that you are investing.
- Considering speculation as a serious business rather than a pastime, without proper knowledge and skill for it.
- Risking more money in speculating rather than investing.
Is Speculation beneficial ?
Yes, but only some times it is. Speculation is fascinating and fun when your speculations are getting true and are reflected in the market. But, If you are looking at some serious speculation, put aside a portion of your capital for speculating and never ever add money into that account even though it is piling up with profits. Actually, speculation is beneficial at times.
- Without speculation, new entrees into the market will never be able to raise the required capital. In case the new entrees are successful, heaps of money is made within a smaller time frame, which is the major benefit of speculation.
- Risk is usually exchanged between persons (remember that risk is not completely eliminated). Every time a stock is bought or sold, the buyer carries with him a risk of stock going down and seller still retains a residual risk – the chance that the stock he just sold may go up.
Investors are of two types. Defensive, Aggressive…… (to be continued)
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