"Investing" vs "Speculating"

[surprising]

Read a book recently where the author made the claim that if you buy stocks, you aren't investing, you are speculating. It kind of makes sense. We buy stocks with hopes that they go higher, and then we sell for a profit.

However, if you buy bonds (and perhaps bond funds), you are literally investing in the company. You are providing capital directly to a company that it uses for building or maintaining the business. Again, makes sense, especially since bond holders get first pick of the leftovers during a bankruptcy, and shareholder's potentially lose everything.

So it all makes sense, but doesn't leave me with a good feeling knowing that majority of my net worth is considered 'speculating.' What do others think?

 

[Dtail]

Plug 100% bonds into Firecalc or any other calculator and see the results.

 

[frayne]

However, if you buy bonds (and perhaps bond funds), you are literally investing in the company. You are providing capital directly to a company that it uses for building or maintaining the business. Again, makes sense, especially since bond holders get first pick of the leftovers during a bankruptcy, and shareholder's potentially lose everything.

So it all makes sense, but doesn't leave me with a good feeling knowing that majority of my net worth is considered 'speculating.' What do others think?

Buying bonds means lending money to a company in exchange for a fixed return, but I prefer owning stocks, which provide a share of ownership in the company. Investing in stocks allows me to benefit from the company's growth potential through dividends and capital appreciation, rather than settling for the limited returns of a creditor. With that said, it all comes down to asset allocation and no one size fits all.

 

[Zathras]

Read a book recently where the author made the claim that if you buy stocks, you aren't investing, you are speculating. It kind of makes sense. We buy stocks with hopes that they go higher, and then we sell for a profit.

However, if you buy bonds (and perhaps bond funds), you are literally investing in the company. You are providing capital directly to a company that it uses for building or maintaining the business. Again, makes sense, especially since bond holders get first pick of the leftovers during a bankruptcy, and shareholder's potentially lose everything.

So it all makes sense, but doesn't leave me with a good feeling knowing that majority of my net worth is considered 'speculating.' What do others think?

Just because someone calls something ‘speculating’ doesn’t mean it is.
If you take the extreme, any stock, bond, or material goods investment could be called speculation.
With bonds, you are speculating that you will get the full interest promised.

You can’t think of it as ‘speculation’ vs ‘investment’.
The two are at opposite ends of the same continuum.

All investments contain some element of speculation and all speculation (that isn’t 100% chance) have some aspect of investment.

 

[Al18]

I disagree with the statement that buying stocks is speculating. Sounds more like click-bait to me. Speculating would be options trading in my opinion. Buying stocks that have been trading for decades is not speculating.

 

[TheWizard]

Buy a few million dollars of stock INDEX FUNDS and you'll be in fine shape.
Ignore the nay sayers...

 

[Montecfo]

Read a book recently where the author made the claim that if you buy stocks, you aren't investing, you are speculating. It kind of makes sense. We buy stocks with hopes that they go higher, and then we sell for a profit.

However, if you buy bonds (and perhaps bond funds), you are literally investing in the company. You are providing capital directly to a company that it uses for building or maintaining the business. Again, makes sense, especially since bond holders get first pick of the leftovers during a bankruptcy, and shareholder's potentially lose everything.

So it all makes sense, but doesn't leave me with a good feeling knowing that majority of my net worth is considered 'speculating.' What do others think?

A lot of hyperbole out there. Don't fall for it.

 

[aja8888]

Everything in life is a gamble, including buying bonds.

 

[SnowballCamper]

Benjamin Graham in the introduction to his book, The Intelligent Investor says, "It is not intended for speculators--persons whose chief objective is to anticipate stock-market movements, whether in the general list or in specific securities. But there are certain kinds of speculative purchases which are justified after an intelligent measurement of the gain and loss factors in the security itself; these operations fall within the scope of our study."

 

[pb4uski]

Read a book recently where the author made the claim that if you buy stocks, you aren't investing, you are speculating. It kind of makes sense. We buy stocks with hopes that they go higher, and then we sell for a profit.

However, if you buy bonds (and perhaps bond funds), you are literally investing in the company. You are providing capital directly to a company that it uses for building or maintaining the business. Again, makes sense, especially since bond holders get first pick of the leftovers during a bankruptcy, and shareholder's potentially lose everything.

So it all makes sense, but doesn't leave me with a good feeling knowing that majority of my net worth is considered 'speculating.' What do others think?

It can be either. If you are lóoking at the company's business prospects, market share, margins, competition, and expected cash flows, then that's investing. If you're following the herd looking for the next sucker (think GameStop and other meme stocks) then you are speculating. Those buying broad based index funds are probably more investing though a reasonable argument might be made that at today's rich valuations there is a nuance of speculation as well.

I think of bonds as lending rather than investing in a business because as long as the business has the capacity to pay I get my return and principal back but my upside is limited.

 

[pb4uski]

I disagree with the statement that buying stocks is speculating. Sounds more like click-bait to me. Speculating would be options trading in my opinion. Buying stocks that have been trading for decades is not speculating.

I understand what you are saying, but what about meme stocks that have negligible cash flows but ebb and flow based on the herd?

 

[RetiredHappy]

To me speculating implies short term positions, while investing is for the longer term. Speculation or investments, I don't really care as long as I make money from it.

 

[Texas Proud]

First, buying bonds does not mean you are 'first' in the pecking order during BK... you might be 15th... lots of other creditors above you...

To me, crypto is speculating... there is really nothing there... I am surprised it has not yet crashed...

investing in stocks means you own a piece of the company and any EARNINGS that it produces... sure, it might not earn anything... it might earn a lot now and then crash horribly... you can call that speculation but I really do not care.. but it is not gambling...

 

[DrRoy]

Buy a few million dollars of stock INDEX FUNDS and you'll be in fine shape.
Ignore the nay sayers...

Buying individual stocks is speculating, but I would say buying the whole market is not.

 

[Winemaker]

I own bonds, small caps, medium caps, large cap index funds. I own growth stock and value stock funds, as well as a bunch of preferred stocks.

I do have a small amount in what I call my speculators, about 1% of the portfolio. I'm a wild man.

 

[Stormy Kromer]

When I was young and wanted to start investing I asked a successful older gentleman about investing. (He made a fortune buying and holding blue chip stocks for 40 years).

He told me "buy quality stocks that you would still want to own if their value goes down by half and own them forever." To me that is investing.

I asked him about bonds, he replied "If I like and trust a company enough to loan it money, I like it enough to buy its equity (stock) instead".

He speculated a little on the side with commodities, gold, silver, coins and grain. He told me to never, ever get started with that.

 

[OldShooter]

To me speculating implies short term positions, while investing is for the longer term. Speculation or investments, I don't really care as long as I make money from it.

Yes. When discussing this general topic with novices, I suggest 5 years as the cutoff. Less than 5 years is primarily speculation; more than 5 years is investing. The difference is the exposure the person has to the short-term randomness of the market.

This chart illustrates:

Speculation is to the left and investing is to the right.

 

[timbervest]

If you buy stocks (which represent a share ownership in a company's current value and future earnings) having some rational justification for believing the valuation is credible or perhaps does not reflect the true value of the current company and you have good reason to believe that the future earnings are likely to materialize, that is investing. Buying a stock without any basis of understanding of the company's current or future prospects and because some meme told you this was the next winner, that is speculating. Too many people do the latter.

 

[Lorenzo]

"Investing" versus "speculating" is mostly semantics. The more volatile an investment is, the more speculative it is. I might also say that the smaller the market is for buyers and sellers of whatever kind of investment it may be, the more speculative it is. Buying oddball things for appreciation in value is speculative.

A similar semantic game could compare "investing" with "saving." I have always viewed the money I put away for retirement more as "saving" and less as "investing." "Investors" do things like "deploy capital." In contrast, little old me simply had a percentage taken out of each paycheck and put into some mundane fund in a 401k. I hoped my savings would earn me a return that beat inflation--I never held out hope that the stock market would double (or whatever multiplier) my savings.

 

[surprising]

If you buy stocks (which represent a share ownership in a company's current value and future earnings) having some rational justification for believing the valuation is credible or perhaps does not reflect the true value of the current company and you have good reason to believe that the future earnings are likely to materialize, that is investing. Buying a stock without any basis of understanding of the company's current or future prospects and because some meme told you this was the next winner, that is speculating. Too many people do the latter.

Whatever the reason though, you are buying something with the hope that it's value goes up. Whether you spent hours doing fundamental analysis or you listened to Cramer, you are 'speculating' that you think the price is going to go up. I think the author was just stuck on the literal meanings of the words.

I have an investment account which I call my speculation plays. Stocks that I felt could gain 10X. Also reasonably possible to drop to $0. Stocks that I've held for many years. One is at 10x, a couple at 2 and 3x, and a couple almost 1x gain. A couple more dropped to nearly $0 before I sold. I had valid fundamental reasons for buying each one, and held on for many years. Is this speculation or investing?

 

[Out-to-Lunch]

Is this speculation or investing?

If an omniscient being whispered the correct answer to this question in your ear, what would you do with that information?

 

[FREE866]

Yes. When discussing this general topic with novices, I suggest 5 years as the cutoff. Less than 5 years is primarily speculation; more than 5 years is investing. The difference is the exposure the person has to the short-term randomness of the market.

This chart illustrates:
View attachment 53482Speculation is to the left and investing is to the right.

Im surprised the 50/50 portfolio did as well as it did. That said , in real dollars the difference of 17% ( all stock) and 14% ( 50/50) is quite significant over time.
There is also the tax factor--liquidating stock and incurring capital gains is much more tax efficient than the income spun off from bonds. That as well adds up over time.

 

[flyingaway]

If I have been doing well these many years in handling my money, I don't care about other people's definitions of investing or speculating. I hold stock funds (about 82%) and bond funds and CDs. Honestly speaking, I don't care about the specific percentages very much anymore. My original plan was 75/25%, but it has drifted in the past few years and I don't have interest in correcting it constantly. All will be fine.

 

[AudiDudi]

Putting money into Canadian penny gold stocks is speculating (or just flushing it) most of the time

 

[Lsbcal]

What is meant by "speculating"? Seems it depends on a nebulous idea we all have. Many will bring in a morality play. I do not agree that speculating is bad and investing is good.

There is really no need to label your money methods with such nebulous terms.

This part of the forum is devoted to "Active investing". Good or bad.