X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Do you 'Invest' or 'Speculate'? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 6, 2009

    Do you 'Invest' or 'Speculate'?

    Most use the term 'investment' in the most casual of ways without ever giving its usage a second thought. It ends up becoming an all inclusive word that can mean any and everything that relates to putting you money at work.

    But not the erudite Benjamin Graham. One of the reasons why he was so good at what he did is he that he had a preference for getting into the minutest detail of everything that was of any importance in the world of investing. And of course, the word 'investment' itself would be the most logical place to start. So what did he mean investment to be?

    After giving some thought to the common usage of the term, he concluded that when people say investment they can mean either of the following three things:

    • The first relates to putting money in a business. One would 'invest' Rs 1,000,000 to open a grocery store.

    • The second usage of the term usually ends up meaning a host of different things within the field of finance. In the master's own words, "It is a convenient omnibus word, with perhaps an admixture of euphemism-i.e., a desire to lend a certain respectability to financial dealings of miscellaneous character."

    • The most important distinction of the third usage of the term is when the word conveys investment as opposed to speculation. Thus 'investment', in this special sense of the word, is good for everybody and at all times. On the other hand, speculation could be good or bad, depending on the situation and the person who is speculating.

    It thus follows that it would be important for anyone engaging in any financial activities to know whether he/she is investing or speculating.

    In light of all such things, Graham proposed one sacrosanct definition of investment -

    "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

    It would be of immense benefit to have a discussion about each part of this definition in greater depth. First is the usage of the term 'investment operation' rather than 'investment' itself. This is because it would be unsound to think of a security (stocks, bonds etc) as by itself possessing investment merit. That is because its price would frequently be an essential element such that a stock may have investment merit at one price level but not at another. 'Thorough Analysis' means, the study of the facts in the light of firm and pre-established standards of safety and value. Though there is no escape from the fact that the 'safety' sought in an investment can never be absolute or complete. The word actually means protection against loss under all normal or reasonably likely conditions. Where analysis indicates that there is a high chance of loss which must be accepted, that would be a speculative situation. Within the term 'satisfactory return', 'satisfactory' is a subjective term and can cover any rate of return, however low it might be, which the investor is willing to accept whilst acting with reasonable intelligence.

     

     

    Equitymaster requests your view! Post a comment on "Do you 'Invest' or 'Speculate'?". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS