What is the difference between investment and speculation?
People have always likened investment in stock market with gambling in different areas other than casinos.
Now let us look at what other well known names who built their fortunes from investing in stocks have to say.
If you are an investor, you are looking at what the asset – in our case business – will do. If you are a speculator, you are primarily forecasting on what the price will do independent of the business.
Warren Buffet
An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting this requirement are speculative.
Benjamin Graham
Investment is an activity of forecasting the yield over the life of the asset; speculation is the activity of forecasting the psychology of the market.
John Maynard Keynes
Benjamin Graham to Warren Buffet is like Ip-man to Bruce Lee, both took what is already good and further improves on it.
Warren Buffet does not totally follow Graham as time progresses by investing in stocks whose prices trade far below their intrinsic values simply because prices of some stocks are low simply because their businesses cannot make it and continue to stay low and become low until they closed down and shares become nearly worthless. Graham concept of buying at a fraction of what the businesses is really worth helps reduces risk considerably.
Similarly, Wing Chun is a really good fighting system, combined artistic moves with practically in actual fighting. But Bruce Lee didn’t stay and remained at what his first teacher taught and continued the evolution of better martial arts.
Based on their definitions, are you investing or really gambling in the stock market?
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