How do you not speculate?

[jacknapier]

I've reading that you should never speculate. I don't get this because no matter what the reason or rationale you're trading or investing on, you're speculating. I'm not aware that there is one single 100% guaranteed investment/trade. If anyone is aware of such a thing, please let me know. Thanks.

 

[new_trader]

I've reading that you should never speculate. I don't get this because no matter what the reason or rationale you're trading or investing on, you're speculating. I'm not aware that there is one single 100% guaranteed investment/trade. If anyone is aware of such a thing, please let me know. Thanks.

Yes and No.

An investor is more likely to be interested in things they can actually quantify, like the fundamentals of a stock whereas a speculator might only be interested in Technical analysis and forecasting.

An investor would be more interested in whether the stock pays a good dividend and whether the business is sound, whereas a speculator only cares about which direction the stock price is going to move in the short term.

An investor has a long term view whereas a speculator has a short term view.

An investor is unlikely to go short, whereas speculators trade long and short.

 

[Splitlink]

I've reading that you should never speculate. I don't get this because no matter what the reason or rationale you're trading or investing on, you're speculating. I'm not aware that there is one single 100% guaranteed investment/trade. If anyone is aware of such a thing, please let me know. Thanks.

I agree. Everything one does is a specualtion. Investments can and do go wrong.

" But, Mousie, thou art no thy lane [you aren't alone]
In proving foresight may be vain:
The best laid schemes o' mice an' men
Gang aft a-gley, [often go awry]
An' lea'e us nought but grief an' pain,
For promised joy."

Robert Burns-

 

[new_trader]

I agree. Everything one does is a specualtion. Investments can and do go wrong.

So, by that definition, someone who takes out a mortgage to buy a house that they want to live in and raise a family is a speculator, just like someone who buys a house with the intent of making a profit from property prices going up.

 

[Splitlink]

So, by that definition, someone who takes out a mortgage to buy a house that they want to live in and raise a family is a speculator, just like someone who buys a house with the intent of making a profit from property prices going up.

Call it what you will. The house property crash, leaving many with negative capital was speculation, in hindsight. At the time, though, the mortgager considered it a sound investment and that prices would never come down.

This is all a play of words but whatever word one uses needs a decision. Good, or bad? Only time will tell. If it was good. it was a wise investment---backslapping all around! If it was bad, it was a chancy speculation that did not come off.

 

[new_trader]

Call it what you will. The house property crash, leaving many with negative capital was speculation, in hindsight. At the time, though, the mortgager considered it a sound investment and that prices would never come down.

This is all a play of words but whatever word one uses needs a decision. Good, or bad? Only time will tell. If it was good. it was a wise investment---backslapping all around! If it was bad, it was a chancy speculation that did not come off.

I think you are missing the main point Split. It is the intent not the result that defines whether a financial decision is pure speculation or an investment. This isn't even my definition, it is the generally accepted definition.

According to you, depositors in Cyprus banks who had their savings taxed to pay for the bailout were speculators because it went 'bad' and those lucky enough to have not been taxed were investors.

 

[Splitlink]

I think you are missing the main point Split. It is the intent not the result that defines whether a financial decision is pure speculation or an investment. This isn't even my definition, it is the generally accepted definition.

According to you, depositors in Cyprus banks who had their savings taxed to pay for the bailout were speculators because it went 'bad' and those lucky enough to have not been taxed were investors.

No, everyone was an investor before the event. Everyone was a speculator after the event.

The "accepted" definition of most things financial are what it is convenient to be believed, at the time.

In any case, it is just my view, perhaps age has made me cynical about how quickly the average Joe's opinion changes from one day to the next, especially about money and how it was accumulated.

 

[new_trader]

No, everyone was an investor before the event. Everyone was a speculator after the event.

The "accepted" definition of most things financial are what it is convenient to be believed, at the time.

In any case, it is just my view, perhaps age has made me cynical about how quickly the average Joe's opinion changes from one day to the next, especially about money and how it was accumulated.

I am trying to educate the average Joe so that they at least can determine whether they are investing or speculating.

So I will reiterate:

If you are trying to profit from short term price movements of an asset, then you are speculating.

If you are taking other factors into consideration, like fundamentals, and you are seeking a longer term total return, which may include more than just capital gains, then you are more likely investing.

The end result makes no difference. It is your intent before you enter the deal.

People who got caught up in the housing boom were speculators who deluded themselves into believing they were investors. I'm not going to debate one way or the other about what they thought they were before and after the 'event', the point is, there IS a difference between speculating and investing.

 

[Splitlink]

I am trying to educate the average Joe so that they at least can determine whether they are investing or speculating.

So I will reiterate:

If you are trying to profit from short term price movements of an asset, then you are speculating.

If you are taking other factors into consideration, like fundamentals, and you are seeking a longer term total return, which may include more than just capital gains, then you are more likely investing.

The end result makes no difference. It is your intent before you enter the deal.

People who got caught up in the housing boom were speculators who deluded themselves into believing they were investors. I'm not going to debate one way or the other about what they thought they were before and after the 'event', the point is, there IS a difference between speculating and investing.

Let me be clear about what I think. Trading is speculative, without doubt. But so is everything else that involves a decision.

 

[new_trader]

Let me be clear about what I think. Trading is speculative, without doubt. But so is everything else that involves a decision.

So, what you have just said is "Everything is speculation". A person who takes a job rather than staying on the dole is speculating on their income. Anyone who buys a property when it is more cost effective than renting is speculating on property. Anyone who buys and holds a FTSE100 ETF and happily collects divendends for years and years is speculating on the stock market the same way as someone who scalps futures contracts on a daily basis.

Whatever Split...whatever...

 

[jacknapier]

An investor is more likely to be interested in things they can actually quantify, like the fundamentals of a stock whereas a speculator might only be interested in Technical analysis and forecasting.

But the investor is still speculating on the fundamentals.

 

[Splitlink]

So, what you have just said is "Everything is speculation". A person who takes a job rather than staying on the dole is speculating on their income. Anyone who buys a property when it is more cost effective than renting is speculating on property. Anyone who buys and holds a FTSE100 ETF and happily collects divendends for years and years is speculating on the stock market the same way as someone who scalps futures contracts on a daily basis.

Whatever Split...whatever...

Well, I hope that property values and share prices, plus whatever, have made investors happy over the last few years.

I am an "investor", at least, I thought was :smart: Some of my shares were taken over at a profit, because I went for growth, instead of value, but some were not so lucky. I put all I could into fundamental analysis and believe, still, that share ownership is the way to go for long term profitability. but, try telling that to owners of Northern Rock, Lloyds, RBS and HBOS.

An investment bubble is one big speculation and the only ones with any sense, at that time were those who traded and did not own the shares.

Renting property has been a pain in the a**** to owners, too. Those who do not want to pay the rent , these days, don't pay. Go to court, if you wish but, in most cases they have become financial losers in the matter.

I can rant on and on about this and many, reading this thread, have those experiences, many are widows and orphans who are left picking up the pieces.

I repeat, that business decisons are, in the final analysis, a speculation on the future. I believe that everyone must think for the best and, after that, keep one's fingers crossed and, please, don't mention gold.

 

[new_trader]

But the investor is still speculating on the fundamentals.

I am not really interested in having a philosophical debate where the meaning of any and every word can be twisted, inserted and or rearranged to suit an argument. By doing that you could argue that investing is hoping because an investor is hoping that things work out. You could argue that investing is a religion because an investor requires faith in what they are investing in...etc...etc Surely you can see how silly things can eventually get?

Speculation in finance is generally regarded as attempting to profit from short term fluctuations in the price of an asset. The reason it is called speculation is because a trader is trying to profit by predicting the future price of an asset, which is an unknown. It is NOT called speculating because it is risky, even though speculation is risky.

The fundamentals are facts as they stand, whether they are fabricated or honest is another thing. It still doesn't make it speculation. The fundamentals are quantifiable, they are ratios which can be calculated, they require no prediction or forecasting.

Investors don't always care about the future price of an asset and may not even care about the movement of the price. If an investor only cares about receiving a 15% dividend on a stock then it is not speculation because the investor knows what they are getting before they enter the deal. Yes, the dividends might change, but that still doesn't make it speculation because the investor wasn't trying to predict what the yield would be in the future, they went into the deal knowing what the dividend is right 'now', so to speak.

You asked how 'not to speculate' and I think I have given you a pretty good idea of how not to do it.

A simple rule of thumb: If you are trying to profit only from short term fluctuations in the price of an asset, you are speculating.

You are welcome to continue the philosophical debate with Split, I think I'm done here.

 

[Splitlink]

But the investor is still speculating on the fundamentals.

You are calling a spade, a spade but those selling investments call them "investments".

 

[resistance]

But the investor is still speculating on the fundamentals.

There is no harm in speculating on fundamentals because they drive the market but we don't know the exact levels to what the market will go and have to a bit careful in deciding the targets.

 

[jacknapier]

I am not really interested in having a philosophical debate where the meaning of any and every word can be twisted, inserted and or rearranged to suit an argument.

Yes, the word "speculate" has meaning independent of the financial markets. A "speculator" in the context of the financial markets is something specific, which is what you are referring to. But it is not exactly what I was asking. I was asking a philosophical question to try and determine the rationale behind the warning that one should never speculate.

A simple rule of thumb: If you are trying to profit only from short term fluctuations in the price of an asset, you are speculating.

I see your point about dividends, although, if I'm getting a 10% dividend and sell the stock at a 5% loss I haven't made any money. Anyway... But an investor is still trying to profit from price fluctuations. He/she just has a longer time frame.

 

[new_trader]

I see your point about dividends, although, if I'm getting a 10% dividend and sell the stock at a 5% loss I haven't made any money. Anyway... But an investor is still trying to profit from price fluctuations. He/she just has a longer time frame.

An investor isn't necessarily trying to profit from price fluctuations. I'm not sure why you say that. A stock purchased with a 10% dividend yield will pay for itself after 10 years. Any dividend after that is pure profit, no matter what the stock price is.

 

[DionysusToast]

Buying something in the hope that someone else will buy it off you at a higher price later - that's speculating.

 

[Rambo35]

Does it really matter if you speculate or invest as long as you achieve your desired results?

 

[brettus]

No, everyone was an investor before the event. Everyone was a speculator after the event.

The "accepted" definition of most things financial are what it is convenient to be believed, at the time.

In any case, it is just my view, perhaps age has made me cynical about how quickly the average Joe's opinion changes from one day to the next, especially about money and how it was accumulated.

I think speculation is pretty straight forward. Like New Trader, it is the intent. I don't think the investors in Cyprus were speculating. Many had no idea of the risks involved and they were just depositing money in the bank as anyone does. I'm not speculating depositing money in the bank if I don't want it under my mattress. They had no intent of speculating on it, so therefore they weren't speculating. Just because they were receiving 7% interest rates, that doesn't make it risky. I'm sure they were paying 10% mortgage rates as well. That's just the norm in Cyprus.

I don't think you can have an opinion on whether someone is speculating or not. It's just Yes or No.