Investing IS Speculating

Watching this clip of Howard Lindzon from StockTwits and Joshua Brown of The Reformed Broker discussing momentum investing with Herb Greenberg brought an interesting exchange about what the differences are between investing, trading and speculation.

CNBC and the mainstream media continues to preach the folly that “investing” is good while “speculating” is bad.  This is especially prevalent with Gold or other commodities which can never be consider a true “investment” since they don’t generate any earnings/yield, so owning them must be “speculation”.

The reality is there is NO difference between investing and speculating.  In both cases the only objective is to make money over time.  It doesn’t matter what you buy or for how long, if you are not right about your asset increasing in value you will not make money.

This is as true for High Frequency Traders scalping a fraction of a cent on a 500 shares of Citigroup in 300 milliseconds as a pension fund investing billions in the S&P 500 index over two decades.  The real blindspot in CNBC and most investors view is that they believe buying something for the “right” reasons and for the “right” timeframe guarantees profits.  To those people, I strongly suggest they review this chart prior to making any long term decisions.

2 Comments

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  • http://thereformedbroker.com downtown josh brown

    Thx for the shoutout! That Nikkei chart is just absolutely brutal for the buy-and-holders!

  • http://www.facebook.com/people/Paulo-Santos/100000020460593 Paulo Santos

    There can be a criteria for separating investment from speculation. Investment is when at the limit you expect the asset you’re buying to be able to provide you with a return. Speculation is when you expect other market participants to provide you with your return.