The Difference Between Investing and Speculation

So, I'm reading the latest edition of The Intelligent Investor by Benjamin Graham. In it he describes the difference between investing and speculation. According to Graham, investing requires these three elements:

  • you must thoroughly analyze a company, and the soundness of its underlying businesses, before you buy its stock;
  • you must deliberately protect yourself against serious losses;
  • you must aspire to “adequate,” not extraordinary, performance

Any activity that does not include all three elements is speculation, not investing, and oneshould expect money used for such purposes to be essentially lost if not for luck.

Some folks may be taken aback by such a strict definition. In the book Graham berates Wall Street for softening the definitions. Day traders are hardly investors. They are speculators.

Pretty interesting insight, and I'm only a few chapters into the book. links:

Josh Poulson

Posted Thursday, Dec 16 2004 09:13 PM

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