Investing vs Speculation
"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” -Paul Samuelson
And indeed, the stock market has turned into a casino with all the hype around "meme stocks" like GameStop, AMC, and most recently, Robinhood.
However, never confuse speculation with investing. They are two totally different approaches.
Speculation involves trading (buying and selling) financial instruments, usually high risk in nature, for short term gains. Speculators love price volatility and are not concerned with long term growth.
Investment involves buying and holding assets for the long run, to achieve capital gain and/or income. Investors are more concerned with the fundamentals of the company or asset that they are buying, and are more willing to ride out short-term market fluctuations.
As professional financial practitioners, we advocate investing instead of speculation, simply because it works.
"The financial markets generally are unpredictable.... The idea that you can actually predict what's going to happen contradicts my way of looking at the market." - George Soros
Beside the lack of skills and ability to predict the markets for most investors, "emotion" is another stumbling block for speculators.
Speculators get exposed to a roller-coaster of emotions, from optimisim and euphoria when the market is up, to anxiety, fear and hopelessness when the market is down.
Did you know that when emotions are high, intelligence goes down? How many times do we say something that we regret when our emotions run high?
By taking the emotions away from the investing, we can all be intelligent investors, making wise and objective decisions.
Studies also show that if an investor holds for 15 years or more, the chance of losing money is zero.
This aligns perfectly with Warren Buffett's 2 rules of investing:
Rule #1, never lose money
Rule #2, never forget Rule #1
Are you an investor or a speculator?