Who The Hell Are You? (2)

WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK.  FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON

Having cleaned up the birthday cake crumbs from last Monday's anniversary blog, we pick up  the topic of investment vs. speculation from my October 24th blog.  We have seen how Philip Carrett and Benjamin Graham addressed the subject.  Al Frank in his book, Al Frank's New Prudent Speculator, wrote about the two words, but felt that the difference was more about semantics than investment strategy.  He cited a dictionary definition of speculation:

Engagement in any business transaction involving considerable risk for the chance of large gains.

In contrast, the same dictionary defined investment as follows:

The investing of money or capital for profitable returns.

Frank pointed out the absence of the words risk, chance or large gains in the definition of investment.  He wrote about this obvious bias: speculation = risky and investment = safe; a viewpoint with which he totally disagreed.  He explained his position as follows:

Right off, let us agree to a stipulated definition that all so-called investing in common stocks is a form of speculation.  I believe it is important at the outset, throughout the pages of this book, and indeed in our everyday thinking about the stock market, to be aware and admit that when we trade stocks or buy them for their long-term potential, we are speculators.

The point of this discussion is not to clarify the distinctions being drawn by these authors, but to suggest that you, as an individual investor, must ask yourself a question before you buy a security.  Regardless of how you may define the words, are you thinking like an investor, a speculator or a gambler?  In any event, whether you are looking for long term appreciation or quick profit, you should save the gambling for Las Vegas, not Wall Street.

The material from Al Frank's New Prudent Speculator by Al Frank, copyright 1995 by Al Frank, is used with permission of the copyright holders, the heirs of Al Frank.

As always, I welcome your comments.