speculation vs value investing software
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Speculation vs value investing software my favorite forex strategy

Speculation vs value investing software

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The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice.

But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. He said that the speculator must think about what others are thinking about stocks and the stock market.

In Chapter 12 of his book — The General Theory of Employment, Interest and Money — where he explained price fluctuations in equity markets, Keynes wrote…. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.

So, in a Keynesian beauty contest, the judges are told not to pick the most beautiful woman the best business but instead to pick the contestant they think the other judges will choose as the most beautiful the most speculative stocks. The winner of such a contest may be very different than the winner of a traditional beauty contest. Much of what you see during IPO rush and bull markets is in fact a Keynesian Beauty contest, with stock market participants trying to guess what others are thinking…about what others are thinking…about what others are thinking [repeat].

So, effectively, people who indulge in day-trading or swing-trading using silly charts and other voodoo-like practices are speculators. In a interview, Buffett was asked to explain how he sees speculation as opposed to investing. Buffett replied…. I look at it in terms of the intent of the person engaging in the transaction.

So you look to the apartment, house, you look to the stock, you look to the fame in terms of what that will produce. You are basically committing some funds now to get more funds later on therough the operation of the asset. Speculation, I would define, as much more focused on the price action of the stock, particularly that you buy or the indexed future or something of the sort.

Just think for a moment, and you are not embarrassed to admit that you want your investments to support you during your years in retirement. Neither are you embarrassed to admit that you want your investments to support your children or help you do good work for others.

But then, if you are like most investors out there, some of what you want from your investments is embarrassing, such as your wanting status. What they want is a thrill. That is why we drink bootleg whisky, and kiss the girls, and take new jobs. We want thrills. The world has changed greatly since then, but our wants remain the same. The man answering the author above that we speculate to make money is not entirely wrong.

We do want to make money from investing and speculating. But the author is surely right. We want pleasure from investing and speculating, and we want thrills from playing the beat-the-market game and winning it. The truth is that the stock market is still a dangerous place to look for thrills and the stock market thrills remain expensive, but we are willing to pay the price.

In fact, a majority of participants in the stock market consider themselves like sportsmen. They want to win. In sports, only if you win the gold medal are you paid millions for endorsements of shoes, watches, and cereals, while silver and bronze-medalists are paid little, and fourth-place athletes are paid nothing.

It is no wonder that an Internet broker made the connection between investment competitions and sport competitions in an advertisement displaying a sprinter in starting blocks above a caption…. You see, the race to speculate in stocks to earn big money, and do that quickly, is too tempting…and the desire to win is too strong. Because this is so, understanding the difference between investment and speculation is the first step in achieving investment success. You are commenting using your Twitter account.

You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email. Skip to content Close Menu. Foreword I want to start by noting that I am not a financial professional by training — I am a software engineer by training, and by trade. It is outdated, but contains a lot of still useful information. Finally, you need to decide what kind of person you are. Are you an investor? If so, which kind? Are you a speculator? If so, which strategy appeals to you more?

Only then, can any sort of useful advice be given. I are investor Not everyone is suited to be an investor. As such, successful speculators generally employ very robust risk models, where they: Limit exposure to each bet i. Risk models should be crafted carefully with an understanding of the primary model. Share this: Twitter Facebook. Like this: Like Loading Previous Entry Investing vs Speculating 2.

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Or like you yourself have done over the years? An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. However, when he came out with his The Intelligent Investor in , Graham confessed…. Since there is no single definition of investment in general acceptance, authorities have the right to define it pretty much as they please. Many of them deny that there is any useful or dependable difference between the concepts of investment and of speculation.

We think this skepticism is unnecessary and harmful. It is injurious because it lends encouragement to the innate leaning of many people toward the excitement and hazards of stock-market speculation. So, even Graham did not leave us finally with a clear distinction between investing and speculation. It is the same point that was mentioned by another legendary investor John Bogle who, in The Clash of the Cultures: Investment vs.

Speculation , argued that in the minds of most individuals, investment and speculation are now indistinguishable. So here we are with three different versions of the distinction between investing and speculation…. The distinction is not clear to most people. Both investments and speculations can be bought and sold. Both typically fluctuate in price and can thus appear to generate investment returns. But there is one crucial difference: investments throw off cash flow for the benefit of the owners; speculations do not.

The return to the owners of speculations depends exclusively on the vagaries of the resale market. The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice.

But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. He said that the speculator must think about what others are thinking about stocks and the stock market.

In Chapter 12 of his book — The General Theory of Employment, Interest and Money — where he explained price fluctuations in equity markets, Keynes wrote…. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.

So, in a Keynesian beauty contest, the judges are told not to pick the most beautiful woman the best business but instead to pick the contestant they think the other judges will choose as the most beautiful the most speculative stocks. The winner of such a contest may be very different than the winner of a traditional beauty contest. Much of what you see during IPO rush and bull markets is in fact a Keynesian Beauty contest, with stock market participants trying to guess what others are thinking…about what others are thinking…about what others are thinking [repeat].

So, effectively, people who indulge in day-trading or swing-trading using silly charts and other voodoo-like practices are speculators. In a interview, Buffett was asked to explain how he sees speculation as opposed to investing. Buffett replied…. I look at it in terms of the intent of the person engaging in the transaction.

So you look to the apartment, house, you look to the stock, you look to the fame in terms of what that will produce. You are basically committing some funds now to get more funds later on therough the operation of the asset. Speculation, I would define, as much more focused on the price action of the stock, particularly that you buy or the indexed future or something of the sort.

Just think for a moment, and you are not embarrassed to admit that you want your investments to support you during your years in retirement. The following is based on my personal understanding, via some formal classes, but mostly self-taught. If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

This post is a continuation of Investing vs Speculating and Investing vs Speculating 2. If you have not read those posts yet, you probably should before continuing here. A separate related post, Zero Sum Game , finally rounds up why understanding investing vs speculating is important. Whenever someone asks me for newbie investment advice, I almost always tell them the same things:.

Essentially, they are trying to understand which of the above modes apply to you best, and when. And in so doing, they can better tailor their recommendations and advice for you. Some people simply cannot stomach the paper losses that investing sometimes entails. You may miss when fundamentals really do change and your model needs updating.

As such, diversification helps to dilute the idiosyncratic risks of investing in individual companies. The more you are willing to dive into the details of companies, the less you should diversify — the more you are sure of a company, the more you should concentrate your bet. Combined with the lack of a fallback in terms of earnings, a wrong bet can be disastrous. For example, if you are betting on momentum , you typically use small bets on many names.

When momentum bets pay off, they tend to pay off big, so even small bets will make a meaningful difference to your entire portfolio. At the same time, you cast a wide net, because you want to ensure that you catch at least a few of the momentum runs. But taking profits on the upside is generally hard — typical momentum models will suggest you buy more as the stock rises, because it has more momentum!

So b is where your risk model should concentrate, for momentum models. For mean reversion models, the opposite is true — as the stock goes up, your model will naturally tell you to start shorting, while as the stock tanks more, your model will tell you to buy more, potentially catching a falling knife. So for mean reversion, your risk model should concentrate on c.

If you invest blindly without understanding what you are investing in, you are not even speculating — you are purely gambling. If you speculate blindly without understanding your exit criteria, you are also just gambling. Gambling is fine, I have nothing against gambling — but understand that when you gamble, you are paying a fee to be entertained. Like Like. You are commenting using your WordPress. You are commenting using your Twitter account.

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Investing speculation software value vs investing papilloma utmb victory

Warren Buffett Explains Investing Vs Speculating

The primary difference between investing and speculating is the amount of risk undertaken. High-risk speculation is typically akin to gambling, whereas lower-. Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Speculation is the buying of an asset or financial instrument with the hope that the price of the asset or financial instrument will increase in the future.