Have you considered the possibility that what you have termed “investing” is more accurately described as simple speculation? If you take that approach, you’ll probably have more reasonable expectations about the money you’ll make, and you’ll realize that almost any investment is actually speculation.

The words “investment” and “speculation” are mistakenly used interchangeably.
The words are often misused and misinterpreted. Worse still, sometimes people will consider a financial opportunity safe when called an investment (real estate is a prime example), when in fact, that so-called investment is actually speculation. The mortgage banking crisis, the Wall Street bailout and its ripple effect around the world are good examples that drive that point home.

Wikipedia, that online resource where definitions are part of an ever-changing open digital landscape, offered this definition of speculation: “The process of selecting investments with higher risk to benefit from an anticipated price movement.”

Considering that speculators take more risks than investors, what do you think about gamblers? Here’s the difference: The astute speculator uses logic and research data to identify the most promising profit opportunities in the market. Understand the complexity and unpredictability of the market, or any game that involves risk capital, and study the underlying forces that cause the market to go up or down.

In short, the shrewd speculator takes a calculated risk. On the other hand, the gambler, whether he is a gambler in the financial markets, casinos, racetracks, or sports arenas, is a casual, compulsive, or professional gambler. His behavior is the key: the compulsive gambler, driven primarily by emotions, tends to just jump in and out, looking to beat the house for a quick and easy win. This type of player tends to play hunches and jump without looking.
Instead, the professional gambler makes a living using mathematics to analyze gambling. The tools he uses may include probability, expectation, and game theory.

“Safe investment” is a myth

It can be confusing trying to distinguish between investing and speculation in any financial transaction, including commodities, mutual funds, stocks, bonds, real estate, or business. This confusion hampers your ability to calculate what your true performance expectations should be. It could cause you to overpay for an opportunity and take unnecessary or even unreasonable risks.

Understanding that investing is a myth is vital when deciding where to commit your capital. In the long run, the decisions you make today will affect your potential to create wealth in the future. If you are looking for a place to put your money with dreams of high returns, we advise you to consider the effect of the herd mentality and how it has led to the ruin of so many, not only in recent days but throughout history. .

You must learn to spot common sense danger signals and remember that if something sounds too good to be true, it most likely is. That way, you won’t be reading your own story when someone writes about the next bubble to burst. Just think of the havoc created by housing bubbles, Wall Street crashes, bank failures and bailouts and that imaginary box labeled “investment” goes up in smoke.

Essential: a well-planned strategy

None of this is meant to discourage you from speculating, far from it. But if you decide to go ahead on the next market rally, have a well-planned exit strategy beforehand. And a deep understanding of the big picture, so you have reasonable expectations and a better handle on what you’re actually doing with your money.

And we encourage you to take a risk. There are many good examples of successful and innovative risk-taker speculators who knew where to look for opportunity. And like so many harrowing accounts of hapless investors who rushed to buy but failed to get out on time.

Of course, keep your eyes peeled. And treat your results as a return on speculation. If you
start from the point of view that everything is speculation, you will be less likely to take irrational risks, have fewer unpleasant surprises, and have more reasonable expectations.