Difference between Investment and speculation

         

        When we invest in something, we should distinguish between investment & speculation. Many people in today's world confuse this and are tempted to lose money. When investing, the most important thing is to recognize what the investment is, as defined by the teacher of Warren Buffet, the world's smartest investor. An investment is a collection of several actions performed with great analysis, protecting the invested capital and expecting an adequate return. An action that is done without following these actions is speculation.

From this, you understand that every person who buys and sells stocks is not an investor. As mentioned in the above quote, when making an intelligent investment, you should find answers to the questions of which company you are buying, for what reason, and at what price you are buying and making the investment. When you find the answers to these problems and invest, you don't have to be afraid of fluctuation in the stock price. Because you know very well that the price and value of a share are two things and you can make your investment with peace of mind and happiness without reacting to temporary price changes.

When investing, you pay more attention to the fundamental analysis of the business and when doing trading, you use technical analysis rather than fundamental analysis. Fundamental analysis considers financial statement analysis, the economic impact of a business, business structure, future earning status of the business, competitors of the business, and whether the price of the business is undervalued or overvalued. In fundamental analysis, investments are made over a long period, where investors are watching a business for a long time to buy. This is because no matter how promising the business is, it makes no sense to buy it at a worthless price. When the market gives you the opportunity, intelligent investors go to those pre-selected investments and make their investments by minimizing the risk they get under the margin of safety at a very profitable price. Due to these reasons, in the long run, these investors can enjoy very high returns compared to day traders. In fundamental analysis, many more points are studied in depth and these mentioned points will be enough for you to get a basic understanding.

When I make a personal investment, I only invest in businesses that I can understand. No investor can have a complete understanding of all the companies and can successfully carry out his investments by focusing only on the small number of businesses that he can understand. This method is called investing by sitting on a circle of competence which is another concept in investment. This has been approved by famous investors such as Warren Buffet, Charlie Munger, and Peter Lynch.