Speculation Isn’t Investing

The word investor comes from the Latin word ‘investire’, to dress in or clothe oneself, surround or envelop from the 1500s.

I don’t know anyone who dresses oneself without looking at the color of their clothes or how it fits themselves. Likewise with investing, you can invest in an asset without knowing anything about it.

Investors rely on research and internal sources of data; earnings, income, growth in the value of the asset, and not what their friends or someone on Instagram tells them is a ‘sure fire investment opportunity’. Speculators, the opposite of investors, rely on external sources of information regardless of the fundamentals.

Whenever someone buys a financial asset because others are doing it, someone famous hyped it up, for an endorphin kick, or because they have a hunch this person is speculating, not investing.

The Intelligent Investor by Benjamin Graham, the most important investment book of all time according to Warren Buffet, is a worthy read for those looking to educate themselves.

According to the Godfather of investing for plebs speculation creates three dangers for investors:

” 1) speculating when you think you’re investing; 2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and 3) risking more money in speculation than you can afford to lose.”

Ben Graham

Reckless risk in investing is one of the most common mistakes leading to more profits going into the hands of the smart money from the speculative investors, aka dumb money.

Ensuring that you’re only speculating with 0.5 to 2% of your investment portfolio is my own strategy and this allows me to make seemingly smart decisions in the short term that often lead to losses while ensuring that 98 – 99.5% of my investment portfolio has a chance of long term success.

Investing is a journey and most don’t realize early on that the most important thing to do is to not lose money. Rule #1 to Warren Buffet in investing is to not lose money. Rule #2 is to not forget rule #1 😳.

Losing is apart of the game, but if you’re investing with a plan and stick to the plan it’s more likely that you’ll win in the long run.

Knowing the difference between speculation and investing is a major 🔑 to long term success according to the OG 🧙🧙s of investing.

Thanks for reading!

Shout out to the Wall Street Journal’s Intelligent Investor article for the inspiration of this post.

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