Cashtoons

Nothing for Something

March 19, 2021

Meet Investing’s evil twin… or at least its unpredictable cousin: Speculating.

twins

What is speculating, and how can it look so much like investing? Well, anytime you put your money out into the world,

money

There is a risk of losing that money.

loss

The prices for companies change every second. If the price goes up, and you sell, you’re making money. If the price goes down, and you sell, you’re losing money.

ocean

There are countless reasons why prices may go up or down, from day to day. People hear that others like a stock and figure they should buy too.

buying

The price goes up.

wavesup

There’s flooding, and businesses lose money. People aren’t excited about buying stock.

selling

The price goes down.

wavesdown

The point? It is very hard to know why the price of a stock changes in the short term.

Still, speculators focus on those day-to-day winds and waves to bring them profits. They are like windsurfers, looking for the next big gust to carry them up.

windsurfer

Speculators are less focused on the long term potential of a company, because they are hoping to buy and sell faster by taking advantage of the short term changes in prices.

Is it possible to make money this way? Yes. But it is also riskier, meaning you are more likely to lose money. It is just too hard to predict what the waves in the market will do. Not to mention, the struggle to keep our feelings in check.

greed

Before you know it, you paid something, hoping for a bigger, faster payout, and you ended up with nothing.

fallenwindsurfer

Investors don’t depend on the ever-changing winds when choosing where to put their money. As an investor, you are on a yacht. You do not worry about the waves, you cut through them looking toward your destination: long term growth of the company.

yacht

You don’t listen to what other people are buying.

Speculating and Investing can look very similar. Both involve buying or selling something, often stocks, with the goal of making a profit.

twins

Who says investing is better than speculating? How can you invest safely without knowing all about a company? Find out next week!

Sources

sources

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor

See these pages in Ground Rules for more on speculating vs. investing: 4-5, 9, 215

https://www.investopedia.com/ask/answers/042715/what-difference-between-speculation-and-gambling.asp#:~:text=Speculation%20and%20gambling%20are%20two,conditions%20of%20risk%20or%20uncertainty.&text=Gambling%20refers%20to%20wagering%20money,risk%20in%20an%20uncertain%20outcome.


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