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David Trainer
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Follow me on Twitter: @NewConstructs David is CEO of New Constructs (www.newconstructs.com), an independent research firm that leverages proprietary technology to find key insights from the Financial Footnotes of 10Ks and 10Qs. Having analyzed over 70,000 annual reports and their Financial... More
My company:
New Constructs
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The Diligence Institute
My book:
The Valuation Handbook
  • Investing Vs Speculating 1 comment
    Feb 12, 2013 11:36 AM
    Investing vs Speculating

    The difference between Investing and Speculating is much larger than Wall Street would have you believe. In fact, they could not be too more different activities. Speculating is gambling. Investing is intelligent decision-making.

    Below are some excellent definitions of a Speculator and an Investor taken from Ben Graham and John Maynard Keynes.

    Speculator

    "If you are a speculator, your decision to buy or sell is based on what you believe about the near-term direction of price." - Ben Graham

    "…speculation is the activity of forecasting the psychology of the market." - John Maynard Keynes

    Investor

    "If you are an investor, your decision to buy and sell is based on the underlying economics of the stock you own." - Ben Graham

    "Investing is an activity of forecasting the yield on assets over the life of the asset…" - John Maynard Keynes

    Now - think about what kind of activity you are encouraged to engage in when you watch CNBC (especially the commercials) or read most research reports. Even worse, think about what an E*Trade advertisement suggests ~ "in your spare time, you are able to outperform professional investors, most of whom spend million of dollars and work 60 hours a week on nothing but analyzing stocks."

    Of course, they want you to speculate…because they make money whether you buy or sell. They want volume and are happy if you buy today and sell tomorrow - again and again. Volume generates commissions. Commissions cost you and lower investment returns. Ergo, your broker's interests are often not aligned with your best interests.

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  • tl love
    , contributor
    Comments (34) | Send Message
     
    You got that right!
    12 Feb 2013, 10:37 PM Reply Like
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