value
Investment vs speculation
The rule
An investment is bought after careful study, promising a safe base and a fair return. Everything else is a gamble.
Where it flips
But the line can be used to look down on all trading. Some skilled speculation is fair. The fix is simply to know which one you are doing, and to never let a gamble pretend to be an investment with your serious money.
Graham's dividing line is a test, not a feeling. If you have not studied the business, cannot say why your money is fairly safe, and are not expecting a sensible return, you are gambling. It does not matter how respectable the product's name sounds. Naming honestly which one you are doing is the first act of a smart investor.
A worked example
Aayra studies a firm's accounts, buys below a careful value, and expects steady dividends and growth. That is investing. Rohan buys a buzzing stock hoping to flip it next week because it "keeps going up". That is gambling, even if he wins. [illustrative]
How to spot it
- ·no study behind the buy
- ·no reason your money is safe
- ·a return hoped for, not reasoned
Benjamin Graham · The Intelligent Investor