INVESTOR VS.

SPECULATORS

What is Investment?

The money you earn is partly spent and the rest saved for meeting future

expenses. Instead of keeping the savings idle you may like to use savings in

order to get return on it in the future.

One may invest in:

Physical assets like real estate, gold/jewellery, commodities etc.

and/or

Financial assets such as fixed deposits with banks, small saving

instrume nts with post offices, insurance/provident/pension fund etc.

or securities market related instruments like shares, bonds,

debentures etc.

Investment meaning :
“ In finance , the purchaseof a financial product or other items of value with an
expectation of favorable future return. In general forms , investment means the use
money in the hope of making more money. ”

Which are the securities one can invest in?

Shares

Government Securities

Derivative products

Units of Mutual Funds etc., are some of the securities investors in the

securities market can invest in.

And here we talking about making Investment in the Stock Market

Investors:
* He looks at the logical value that may accrue over time as the particular stock price is
affected by the ongoing business, the industry, economy and so on.
 Investor vs. Speculators

* They go for savings ,invest in real estate..etc.,

* In stock market the go for long-term investment in a quality company

High risk

Option;

Future

Collectibles

Real estate; equity mutual

funds;

Large /small cap stocks;

High income bonds /debt;

Low
Govt bonds/debts; money market /bank
risk accounts;

CDs ,notes, bankers Accepts. ; cash and cash

quivalence

* if the stock of a company is dramatically under-valued based on the cash that it is

currently generating or is likely to generate in the future (the market value assigned by
the public is low compared to the company's intrinsic value). In such a situation a long-term
speculator (also known as a 'value investor') such as Warren Buffett might decide to buy
the stock. He does so because he knows that the stock price will eventually return to its
intrinsic value and he doesn't really mind how long he has to wait for this to happen.
 Investor vs. Speculators

3
Result of long – term investment : Eg:- NASDOQ 1999 – 2001

+50 % in one
136% gain in
less than one

year
year

Apple Computers
(+750% in 24
months)
 Investor vs. Speculators

Investment Average Annual Return ( 1976 – 2000 ) 4

S&P 500 11%

Small-Company Stocks 12%

U.S. Treasury Bonds (short-term) 4%

U.S. Treasury Bonds (long-term) 5%

Savings Interest Rate 1-3%

Inflation 2-3%

Source: The Motley Fool Guide: How to Start Investing

Investors become speculators :

investors become speculators when they are purchasing a stock with the sole purpose of
selling it to someone else at a higher price.

Speculation meaning
Dictionary meaning is “[noun] a message expressing an opinion based on
incomplete evidence”
Synonyms: guess, conjecture, supposition, surmise, surmisal, hypothesis

* * Speculation has a special meaning when talking about money. The person who speculates
is called a speculator. A speculator does not buy goods to own them, but to sell them later. The
reason is that he wants to profit from the changes of market prices.

Stock market speculation, by definition, involves taking a position that will benefit from a
certain outcome.
 Investor vs. Speculators

5
It is not concerned, necessarily, with underlying value, nor is it a view that tries to forecast
the future for a particular industry or company purely beyond its short-term price
action.

speculation is described in two ways:

* Investors enter into a trade with the intention of ending it in the same settlement cycle;

* When they use the existing mechanisms of lending and borrowing to carry-forward their
obligations to subsequent settlements.

 Having described it thus, it may be mentioned that speculation through borrowing and
lending mechanisms is present in most markets.

Speculators:
He doesn't care about the inherent value of the stock. He or she only cares about whether
or not they think it will go up in price as more and more speculators accumulate the
stock.

* a speculator is anyone who buy a financial tool, mostly a derivative contract, in order
to benefit from price movement of such a tool. There are two types of derivatives buyers,
and I am focussing on derivatives here because speculation mostly is a big part of that
market and the problems we have are in that market, the one type of buyer buys out of a
need and the other just for price benefit or to make a profit through price movement

* speculators are risk managers in the market

* speculators are short-seller

* Speculators do not plan to keep an asset for a long time.

Speculation is important because:

* Speculation exists because it enhances the functioning of the stock market

* The market for stocks itself exists because different people have different views on the
same stock. To explain, if all investors had the same view on every company, then
everybody would want to buy at the same time or conversely, sell at the same time. The
implication is that a market cannot exist because there is simply no one with a different
view.
 Investor vs. Speculators

* And the thumb rule is that greater the variety (categories of investors), greater the
likelihood of trades taking place.

* Unlike bank deposits, investing in stocks is, relatively, a risky business. There can be
short, sharp fluctuations that result in big gains or losses. One way of looking at speculators
is that they are a class of investors who are willing to take more risks on an average.

* The biggest advantage of speculation is that it increases the volume of the stocks
traded.

 And volume is absolutely essential in creating a marketplace that functions smoothly.

 Higher volume means that investors can enter and exit any moment
 Volume also plays an important role in price formation. Intuitively, all of us know if
there arises a sudden huge sale in any market, the price will crash
 in a stock market that sees sporadic trades, orders for slightly bigger quantities will
create huge swings in price. Thus, the price formation will be jerky.

* On the other hand, when the market is liquid in terms of frequent trades taking
place, the change in price is relatively smooth. Even if big orders come in, the depth in
market results in relatively smooth changes taking place.
 Investor vs. Speculators

The fear with speculation is that… :

* The biggest fear with speculation is that it can-- accentuate sharp movements which
may result in a high volatility in stock price.

* They are also likely to be first to panic(fright) in case of adverse developments. If they
have traded on borrowings, they also happen to be at the mercy of creditors'
decisions.

* By definition, speculators are the ones who are willing to take bigger risks.

Low risk High

risk
Aggressive
Moderately

Aggressive
conservative
Moderately

Aggressive
Very
conservative

* speculators are risk managers in the market

Speculation includes the buying, holding, selling, and short-selling of stocks, bonds,
commodities, currencies, collectibles, real estate, derivatives or any valuable financial
instrument.

Is Speculation and Gambling are the same..

Speculation and gambling are similar, with a few important distinctions. One difference is the
perception, sometimes true, that successful speculators profit due to their skill or an unseen
advantage, while gamblers prosper due to chance or luck.
 Investor vs. Speculators

Another distinction is that gambling in most forms has been illegal (at least until government got
involved and changed the rules in their favor) while speculation plays an essential role in our
markets and thus our economy.

These important distinctions make speculating which indeed is what our investment industry
purveys as an accepted occupation – indeed one with one prestige and gamblers not being
accepted in the same light.

* Speculation can be invited if we go for it with analysis of market trend by using some
technical tools such as charts and past experience(what has happened before is 100 % sure to
happen again).It can give you a percentage of possibility to reach certain profit.

* Speculation becomes Gambling ,when we go for short-selling with a guess / intuition which
does not has any logical support ,only with a purpose of earn profit in short-term .But it has
more possibility to lose

* Disciplinary trade is needed

The biggest advantage of speculation is that it increases the volume of the stocks
traded. And volume is essential in creating a marketplace that functions smoothly.
The pros and cons of speculation are probably dimensions that the market will just
have to live with. CERTAING AMOUNT OF DICIPLINE HAS TO BE FOLLOWED IN
TRADING BY EVERY ONE

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