Investing, Speculation and Gambling are three terms constantly used in the stock market. You need to have a clear understanding of the three if you want to not commit mistakes in your decision making.
The Logical Mind
Before I explain the difference to you, watch this snippet from the movie 21
Do you see what did Ben Campbell do here?
He took the first option which purely without any thought because the probabilities were the same. And right after the situation and the probability changed he switched and did what the logic and math suggested. He kept his emotions aside.
That is what the logical mind does – It takes a logical decision based on simple math. A logical mind will never take any decision on the basis of emotions, gut feeling fear, hope expectation etc.
Comparison of Decisions
Investing, Speculation and Gambling all result in a single simple decision – To Buy or To Sell. So what changes that we have three different words for it?
The answer is the thinking behind it!
I’ll explain. According to Google the meaning of the three words are:
- put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit.
- The forming of a theory or conjecture without firm evidence
- investment in stocks, property, etc. in the hope of gain but with the risk of loss.
- play games of chance for money; bet.
- take risky action in the hope of a desired result.
Points to understand
- Speculation is a theory without firm evidence
- In speculation there is the hope of gain, but would you leave your financial future on hope?
- Gambling is a game of chance for money!
- In Investing, there is the expectation.
Remember ‘expectation’ never comes without preparation and evidence. Would you ‘expect’ a baby if there isn’t a foetus? Similarly ‘hoping’ for a baby without any evidence or preparation would be dumb right? That’s how dumb ‘speculation’ is! And ‘gambling’ is worse!
All these three, are a judgement of a decision. The same decision can be an Investment, Gambling or Speculation.
This difference is the amount of work put in before making the decision to buy or sell.
No matter what word we give it – Investment, Speculation or Gambling, there are only two types of decisions Right and Wrong.
And before knowing the outcome how can we know it is right or wrong? We can’t! So what we can do is take better, informed decisions so that we turn out to be right in the long run. This is what Investing is!!
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