What is speculation ?

There's a few threads suggesting that property investment is speculation...
If you negatively gear a property you are speculating on future price or rent growth to make a profit in the future

Where does the distinction between investing & speculating ( & gambling) lie ?
  • Buying Google shares 10 years ago - they didn't make a profit & paid no dividend, but there was an expectation of a profit in the future
  • Buying dot com company shares in 1999 - they didn't make a profit & paid no dividend, but there was an expectation of a profit in the future
  • Buying Berkshire Hathaway shares 50 years ago - they never pay a dividend, but have had spectacular capital gains
  • Buying a +ve geared property today with the expectation that the income would continue to cover the costs & produce a profit
  • Buying -ve geared property today with the expectation that the income would increase over time to cover the costs & eventually produce a profit
  • Buying -ve geared shares today with the expectation that the dividend would increase over time to cover the costs & eventually produce a profit
  • Buying gold that is guaranteed never to produce an income - the only expectation is for capital appreciation
  • Buying a lotto ticket ?
  • Buying all the lotto tickets (i.e. buying every single number - this happens when the prize has accumulated to be worth a lot more than the cost of buying all the tickets) ?
  • or something else ?

Or is the distinction between investment and speculation dependent on the amount of cash put into the deal ? Would it make a difference to the above if the investment was 100% funded by cash or 100% borrowed funds ?

Or is the distinction something more abstract like knowledge (and therefore probability which leads to an expectation of gains) ? eg expert knowledge of the market for search engines, or inside information about a dot com firm, or excellent research & experience of a particular suburb or share market sector ?
 
What a lot of people don't understand is that words can have different meanings depending on the context. For example "theory" in the field of science literally equates to "fact". Like the "theory" of evolution. The "theory" of gravity.

This is what I posted in the other thread:

To me, speculating is about the motivation behind the action, not the way it's financed.

Speculating to me is synonymous with gambling - you're making a bet based on very weak information (i.e. my friend said BHP is going to double!). Investing, in contrast, is backed up by much more research, knowledge and experience.

How this is actually financed is irrelevant. Whether it's cashflow positive or not is irrelevant. You can gamble at the casino with your own money, or borrowed money - but it's still gambling.
 
The best definition I found that makes perfect sense to me is from Ben Graham

?An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.?
― Benjamin Graham, The Intelligent Investor

This to me should leave no doubt between the difference of investing vs speculating.

Cheers,
Oracle.
 
I find it a bit odd that speculation is used as a negative term. If you've done your thorough DD on an investment opportunity there's nothing inherently wrong with some speculation.
 
There's a few threads suggesting that property investment is speculation...



Where does the distinction between investing & speculating ( & gambling) lie ?
  • Buying Google shares 10 years ago - they didn't make a profit & paid no dividend, but there was an expectation of a profit in the future
  • Buying dot com company shares in 1999 - they didn't make a profit & paid no dividend, but there was an expectation of a profit in the future
  • Buying Berkshire Hathaway shares 50 years ago - they never pay a dividend, but have had spectacular capital gains
  • Buying a +ve geared property today with the expectation that the income would continue to cover the costs & produce a profit
  • Buying -ve geared property today with the expectation that the income would increase over time to cover the costs & eventually produce a profit
  • Buying -ve geared shares today with the expectation that the dividend would increase over time to cover the costs & eventually produce a profit
  • Buying gold that is guaranteed never to produce an income - the only expectation is for capital appreciation
  • Buying a lotto ticket ?
  • Buying all the lotto tickets (i.e. buying every single number - this happens when the prize has accumulated to be worth a lot more than the cost of buying all the tickets) ?
  • or something else ?
Or is the distinction between investment and speculation dependent on the amount of cash put into the deal ? Would it make a difference to the above if the investment was 100% funded by cash or 100% borrowed funds ?

Or is the distinction something more abstract like knowledge (and therefore probability which leads to an expectation of gains) ? eg expert knowledge of the market for search engines, or inside information about a dot com firm, or excellent research & experience of a particular suburb or share market sector ?

One would have to break it down into time frames a person starting out in the mid early 1980's would be different from starting in the 1990's then the 2000's would be different to some one buying in inner Sydney a week ago..

Gold,, loto tickets,, side street fortune tellers,, pharmaceutical companies, prostitution ,all have a reputation for speculating, but the distinction maybe some where in between greed and fear one always overtakes each as we are starting to see the us internet equities markets and the speculating and gambling over the past few years..
 
Speculation is when investments fail.

For now, property is still an investment. And those waiting for it to fall are speculating - since their strategy has failed thus far.
 
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