Investment vs Speculation: Speculate To Accumulate?

by humagaia

Investment vs speculation is a long running argument. Do we really need to speculate to accumulate? Investment is for certainty. Speculation is for the gambler in you.

Investment versus speculation, that is the dilemma, but only if you do not have the knowledge on which to base your investment strategy.
Speculation occurs when you think you know better than the market.
Investment occurs when you know you know better than the market.
Speculate for short-term gains, but be prepared to lose it all.
Invest for long-term wealth and security, secure in the knowledge that securities are named that way for a reason.
'Speculate to accumulate', or 'invest to accumulate', which is the answer?

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Speculate To Accumulate

There is an old adage that goes:

"You need to speculate to accumulate".

However, in creating a long-term investment plan for sustained growth in wealth, speculation is not part of the formula. 

An adaptation to the adage, such as:

"You need to invest to accumulate"

is much more appropriate for the investor. Building long-term wealth is a matter of smallish short-term goal achievements which accumulate, with the help of compounding, into substantial medium- to long-term value.

Investment is where you calculate the odds and take advantage when those odds are in your favor.

Speculation is for the gambler in you.

And we know that the only winner in the long run is the man that makes the odds.

The odds are against you when you speculate.

If you want quick profits, and you are prepared to lose more often than not, then by all means try speculating.

You may get a short-term high, but your long-term outlook is likely to be overcast to stormy.


Investment vs Speculation

Is it investing or is it speculating?

There is a NOT so subtle a difference between investing and speculating

  • Investing = looking to make your money grow, steadily, over the longer-term.

  • speculating = looking for short-term gains that give a quick boost to your capital

Speculation is gambling. There is no security in gambling.

Investment is to secure income or profit.

The operative verb being 'to secure'. 

Invest in securities, and long-term income and profit are secured, if your risk analysis and diversification strategies are adhered to.


Increase capital and income

Investing is the strategy employed to create increases in capital and income. The emphasis is on the safety of the capital investment.

When you invest, decisions are made on the basis of overall market conditions, and the fundamentals of the securities being purchased.

Your investment objectives are attained by being careful and sticking to the basic rules.

Investing is the business of designing a strategy for the creation of long-term wealth. It is not to be taken lightly, as your future is at stake!


Short-term boost to capital

Speculation, on the other hand, involves short-term timing and taking advantage of short-term market fluctuations.

It can involve gearing or leverage - the use of borrowed money to increase potential returns, but not without an increase in potential risk.

Only speculate with money that you can afford to lose - just like gambling!

If speculating, you will usually be dealing with factors that are outside of your control, but not necessarily outside of your understanding.

These factors are likely to be difficult to analyse.

If you speculate you must be aware that you will be wrong much of the time.

You should expect to lose money when you go down this route.

Cut losses quickly.

Employ stop-loss strategies where possible to limit the potential for loss. Count on a few fortunate successful moves to finance the failures. This is the gambling side of "investment".

Speculation is a "fun" and exhilarating business, designed to give your capital a quick boost, if successful. You must analyse your needs and scale the risk / rewards balance in order to determine how much speculation you can afford, against the avoidance of risk, in a long-term wealth building strategy.


Future Investment Articles

In future articles I will explain the detailed strategies for "playing the game" in

  • options
  • commodities
  • precious metals
  • margined stocks and shares
  • rights issues
  • financial futures
  • stock and share offers.
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the . Speculation typically involves the lending of money for the purchase of assets, equity or debt but in a ...
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as ...

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Updated: 02/06/2021, humagaia
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Tolovaj on 06/16/2012

Good to hear that. I'll check them soon or later. I am sort of a gambler;)

humagaia on 06/16/2012

It's all about risk. I have covered that in other articles in this series.

Tolovaj on 06/15/2012

Investment, speculation... It is all about risk management! And we should know life itself is pretty risky business. Even if we don't risk, we maybe risk too much:)

humagaia on 06/14/2012

Tolovaj - you may well have given the one piece of advice that is universally true - to paraphrase: only invest (or speculate) with half of the proportion of money you allocated to the investment (and only use money you can afford to lose).
With the other half: find an alternative speculative place (or investment) for your money.
Good job!

Tolovaj on 06/13/2012

Some interesting points here although I don't (maybe I am too old for that already) distinguish between investment and speculation anymore. What seemed long term investment ten or twenty years ago to me, is different story now. And after two decades on the stock market I know there are some rules but none of them is fixed. And what seemed sure investment proved to be very risky business. And when I was looking for sure thing just to keep the value, I accidentally made 300 percent profit, all legal and tax free and I realized it only months after that happened. And there was nobody who could anticipate something like that.
There are only two (and very unreliable) things related with money: fear and greed. You can put them into math equations but they will find an exception just like when you are playing Roulette. Soon or later your turn will come.
My hint is not: play it safe, but play with no more than half of everything you have.

humagaia on 03/15/2012

G_S I'm trying...................very trying.

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