Often, the terms speculation and investment are used synonymously, but there is a substantial difference between both of them. In some other cases the terms speculate versus gambling bets also confused.
Why is it important to understand this difference? The reason is simple, some of us, when we are new to a particular area, act contrary to what we expect, for example we start by investing small amounts thinking that we’re going to make money in the short term, even if we know internally we are speculating, however, if the transaction does not go as we hope, we give it time, and more time and more time thinking that that will restore the situation, what began as speculation and didn’t give us results and ends up being an unsatisfactory investment that stagnates our money.
Additionally, understanding these concepts intellectually is not enough, but simply becoming aware of the difference helps us not to lose objectivity.
In my opinion, Investing involves allocating a portion of our capital or our time in a business, company or action in the stock market, which is expected to bring us some economic return, a future benefit, but this future is long term; additionally, whoever invests gets personally involved because he or she seeks a dividend, result or intervention in his or her investment.
Example: If you are to start a business, the idea is that you’ll be usually a shareholder or owner for a long period of time, otherwise, normally you would not even take the time to start a business or invest in it.
On the other hand, the term of speculation according to the dictionary means buying a good whose price is expected to go up in the short term with the sole purpose of timely sell it and make a profit. In this second case, a person who speculates in the stock market is neither interested in the company itself, nor in being a shareholder or being involved in decisions, much less long-term decisions, his or her interest is to receive a fast return and upon receiving that return he or she is going to get rid of that particular stock.
Both investing and speculating involve risks, however, the type of risk is different in each case. The investor will be the most challenged when dealing with changes in markets that do not depend on him or her, most are external. On the other hand, for the speculator or short-term investor, the smaller the investment window he or she has to deal with, the greater emotional control and increased technical skill he or she has to have.
Finally we find the terms betting or gambling. In this case, a lot of money is used to take part in a game and we will only get something in return if our prediction proves correct, so that, if the result is correct we will receive a much larger amount of money compared to what was initially “invested”. In the case of gambling, the odds against who bets are very high.
Many people like gambling, but taking investing in the stock market as gambling can destroy your wealth. In this case, it would be better to allocate an amount you’re willing to lose, you go to Las Vegas and enjoy a good holiday.
Making an investment in a company, as well as speculating should be viewed as a business, both have risks, in this way, a business must BE TAKEN SERIOUSLY, because every business should have a plan of action, a purpose, an amount and time of investment, an acceptable risk and an expected return.