What exactly is an investor, a speculator or a player in the
context of the Stock Exchange or, for that matter, any market?
Both the public and the media have often expressed themselves in vague and interchangeable ways.
use these three terms. Comparisons are often made between their activities,
but the terms are never explicitly defined.
I could ask if there is a need to be different in these terms.
Well, there is definitely such a need simply because, if you want to profit
market consistently, it is crucial first, to know who you are and how
you will participate in the market. In fact, the mentality and methods
employed by an investor, speculator or gambler differs widely and to a great extent
affect the profitability of participating in the market. how dangerous is it
Venture into the markets blind!
The Public often called itself an Investor, perhaps influenced
by the Media. But how many of them are really investors or even speculators?
Think about it, many of the self-proclaimed Investors are actually Regular Players,
bet on the market on the slightest rumours, internal news, company news or
fluctuations, hoping to get rich quick by chance. This is not a debate about whether
betting is good or bad, but if you are going to bet; don’t you think that you
have a better chance at the Casino, which exists for this purpose?
So what are the differences between an investor, speculator and
Play? To differentiate them we must start by defining
they. If you are motivated enough, I encourage you to try to define the
terms ‘speculate’, ‘stakes’ and ‘invest’ before reading on
this article… you may be surprised.
Consider the following.
investors
An investor is an individual whose primary concern in purchasing
of a security are the regular dividend income, the security of the original investment,
and if possible, capital appreciation.
A person whose primary concern in purchasing a security
is the minimization of risk, compared to the speculator who is willing to accept
calculated risk in the hope of higher-than-average profit, or the “gambler”
who is willing to take even greater risks.
In 1934, Graham and David Dodd took up the subject and offered
a definition of “investment” in his classic Security Analysis textbook
“An investment operation is one that, after an exhaustive analysis
promises security of principal and an adequate return.
Operations that do not meet these requirements are speculative.”
– Graham and Dodd Safety Analysis (original 1934 edition)
Speculator
Speculation is the buying, holding, and selling of stocks, commodities, futures,
coins, collectibles, real estate, or anything valuable to profit from
fluctuations in its price instead of buying it for use or for income – dividends,
rent etc
A speculator is one who is prepared to accept calculated risks in the market.
for attractive potential returns.
Speculation: The activity of forecasting the psychology of the market.
Speculative reasons: The object of ensuring the benefit of knowing better
than the market what the future will bring.
John Maynard Keynes in The General Theory of Employment, Interest, and Money
Player
Gambling (or betting) is any behavior that involves the risk of money or valuables
about the outcome of a game, contest, or other event in which the outcome of that
activity depends partially or totally on chance or on one’s ability to
do something.
“A game is the assumption of risk with no other purpose than the enjoyment of
risk in itself, while speculation is carried out despite the risk involved
because a favorable risk-return trade-off is perceived. Convert a bet to
a speculative perspective requires an adequate risk premium for compensation to
risk-averse investors because of the risks they take.
– Investments by Zvi Bodie, Alex Kane and Alan J. Marcus
Regardless of how you define the terms, it is likely to be a worthwhile activity.
to estimate their expected returns in both absolute and relative terms
to a suitable reference point. And if you find yourself enjoying the activity
of investing or if you find yourself addicted to the speed and excitement of
the commercial game, perhaps you should seriously consider whether you have crossed
the line between investment and speculation, or worse yet, maybe you are really
betting with your money.