Speculating on Investment, Or Investing in Speculation?

[peristaltor]

The two words "investment" and "speculation" are to some synonymous, to others diametrically opposed. I find myself in the latter camp, though the confusions and conflations these two terms suffer makes it difficult to say the least even to articulate what about the differences should be emphasized. I guess I'll first let a supposed expert

Comments

[abomvubuso]

There are many things that distinguish investment from speculation. The levels of risk, the choice between short-term and long-term returns, and the proneness to create an actual new product that would be of some use to other people, etc.

[peristaltor]

There are many things that distinguish investment from speculation.

True, but there are too many people that would, for example, consider selling a stock short an investment. Done right, it is just about a sure thing; but it temporarily destroys value to be effective.

I see you're in real estate, a field fraught with those who blur the lines between the two terms. ;-)

[abomvubuso]

Yebo, tell me about it... I often hear people saying things like "I'm prepared to do some good investment in this or that country", when they merely mean do some short-term spectulation. But that might be just semantics. The end result is what matters.

[peristaltor]

The end result is what matters.

Exactly. I'm coming to the conclusion that one must have little to no regard for the resale value of the investment for it to be less than speculation. It's an extreme position, I know, but I hope to flesh out my rational in the near future.

[l33tminion]

In my view, the key difference between investment and speculation is that investment increases the future production of goods and services and speculation does not. (At extremes, speculation can even act as a kind of anti-investment and diminish the production of goods and services

[peristaltor]

To be honest, I kinda screwed up the post because I did not have my idea of investment in my head. The entire thing was a wrestling match between what I think a definition for "investment" might be and what most think it actually is (like yours).

For me, to "invest," one must move one's wealth into a purchase that:

• is physical in nature (aka an object); and
  
• will produce a physical dividend sufficient to recoup the initial outlay of wealth in a reasonably definable time period.

This modified definition will by necessity render stock and most bond purchases as speculative, since most are bought as places to park money in the speculative hope that the purchase will hold its value better than the money used to purchase it. (In an inflating money supply, money loses value over time, and thus must be converted into a commodity perceived as one that grows more valuable, lest one's overall cache of wealth diminish