Sunday, March 28, 2010

Invest, Speculate or Gamble

When you buy shares in the stock market, are you investing, speculating or gambling? Before you answer this question, let's take a look at what is what.
According to Benjamin Graham , an investment operation is one which upon through analysis promises safety of principal and satisfactory return. Operations not meeting these requirements are speculation.
What is speculation?
Engagement in risky business transactions on the chance of quick profit or exchanging money for something involving high risk but also the possibility of high profit is speculation.
What is gambling?
Playing games of chance for money and wagering of money on an event with an uncertain outcome are gambling.
Many people think that if you buy stocks for the long term, you are investing, and if you buy for the short term, you are either speculating or gambling. Actually this is not true. If we go by the definition of Graham, we are investing if we do a through research, are convinced that our principal is safe and that what we buy will give us a satisfactory return before we buy, we are investing. The time factor does not matter. So whether you invest or gamble, it depends on what you have done before you put in your money.
Investing is positive. Speculation is neutral. Gambling is negative.
Gambling can ruin your life. Think of your family before you gamble. There is no way you can outsmart the banker.