The Relation Of Investment And Speculation

Author:

2008-10-01 Word Count: 527 Category: Investments

The Relation Of
Investment And Speculation

All the brokers
get relieved and can be seen to cheer when the closing bell strikes at the stock
exchanges. This type of relieving situations appears quite odd when the market
is going through some upheaval. If a person appoints genuine stock brokers for
trading his stocks then he can make money easily. Brokerage houses turn over
profits by earning commission on these trades. If you’ve traded a lot in a day
then that’s good for them, but it’s not so good for you.

According to
such people, an investor calculates what a stock is worth, based on the value of
its businesses. A speculator gambles that a stock will go up in price because
somebody else will pay even more for it. It is also urged that you should only
invest if you would be comfortable owning a stock even if you had no way of
knowing its daily share price.

You should
really think of the stock market as a giant casino, which has calibrated the
short term odds against you so that the house (brokers) always prevails against
those who try to beat it at its own speculative game.

By wheeling and
dealing with daily trades on the stock market, you’re never likely to earn much
money. For a start, an unhealthy portion of your money will go straight to
brokers in the form of fees, and on that you’ll have to pay a stamp duty tax. To
make any money on a daily trade, you’ll then have to recoup good percentages in
a 24-hour period. This is folly, because before you’ve even started, you’ll be
hoping the ticker rises higher just to break even. You’ll be better off
forgetting your stocks and shares account altogether, and just heading to a
website like CMC and

spread betting. After all, both are forms of gambling.

The people who
have made the most money on the stock market don’t give into day trading. They
turn away from the speculative nature of it and pay their attention to
investing, which is an entirely different thing. The Benjamin Graham school of
investors, which includes the world’s richest man, Warren Buffet, invest
according to three equal elements. These are:

you must
thoroughly analyze a company, and the soundness of its underlying businesses,
before you buy its stock;

you must
deliberately protect yourself against serious losses;

you must
aspire to adequate, not extraordinary, performance.

Investing,
meanwhile, is a different thing altogether. It’s something where you cannot lose
in the end, so long as you play to the rules that put the odds in your favour.
People who invest in the long term make money in the long term, while people who
speculate make money for their brokers. It’s why trading houses downplay the
virtues of investing and hype the glitz of trading. They win. If you want
to find out more on

investments,
take a look at Legal and General for a range of products.