The following was the second post on this blog (in 2004):
We often hear the terms “Investment” and “Speculation” used interchangeably and casually. “Speculation” is often used as a derogatory term for activities considered somehow wrong or extreme. But both these words have relatively well-defined meanings. An “Investment” is a transaction which is entered into primarily to yield an ongoing income stream. While in many cases capital gains may also be a hoped-for result, they are secondary. A “Speculation” is a transaction which is entered into for the primary purpose of a capital gain on sale. Income, if it exists at all, is a secondary consideration and often will be negative, a “carrying cost”.
So if I buy an apartment building for rental income, believing that the rents will yield a net return on my capital after expenses, then that is an investment. If I buy a house with the intention of “flipping” for a higher price as soon as possible, then that is a speculation.
It is important to define the terms because they will be used frequently, but carefully, for their particular meanings.
I would add for clarification that stocks that don’t pay dividends may be investments so long as they make profits that are re-invested in the company.
I have nothing against speculation, I myself am a professional speculator at this point. I decided to change from buy-and-hold investment to speculation in 1997 as a matter of fact. After some beginner’s luck there was quite a learning curve, but it was the right thing to do.
The financial gurus, writers and commentators glibly refer to people who buy stocks as investors. Generally speaking, they are not. Available income streams yield so little as to be far outweighed by the risks to their capital, and anyway most are careless of income and profits, seduced by the Pied Piper of the ever-rising market, courtesy of government support. They are speculators without the tools and experience necessary for long-term success. If you want to be an investor today, some form of Treasury ladder is probably your only realistic choice.
This is a rich environment, however, for speculation. Sentiment is lopsidedly bullish and valuation is unprecedentedly high. The market is cruising for a bruising, the only question is when. The downside is that, unlike investing, speculation requires constant attention and I’m tired of it. But there is no choice so I soldier on. I do look forward to the day when I feel I can return to an investment style, when John Hussman’s model shows 20+% returns available and he is bursting with bullishness. Of course, the “investors” of today will not listen to him because they will have long since given up their gains and more to the wolves of Wall Street.
Trees swayin’ in the summer breeze
Showin’ off their silver leaves
As we walked by
Soft kisses on a summer’s day
Laughing all our cares away
Just you and I
Sweet sleepy warmth of summer nights
Gazing at the distant lights
In the starry sky
They say that all good things must end some day
Autumn leaves must fall
But don’t you know that it hurts me so
To say goodbye to you
Wish you didn’t have to go
No, no, no, no
And when the rain
Beats against my windowpane
I’ll think of summer days again
And dream of you
They say that all good things must end some day
Autumn leaves must fall
But don’t you know that it hurts me so
To say goodbye to you
Wish you didn’t have to go
No no no no
And when the rain
Beats against my windowpane
I’ll think of summer days again
And dream of you
And dream of you
— Chad & Jeremy
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