3 ms·

I'd suggest that all investing is fundamentally "speculating on price".

twawaaay 4y ago
No, that is not true. The idea of speculating is "I don't care understanding the underlying business, the only things that matters is the price is going up". But that does not mean there are no people actually investing. Investing means you understand at least to some degree the thing you are investing in and you think it is sound investment -- meaning there is good enough chance the money you will put in it will get multiplied over time. When actually investing you don't really care about short term price changes. When my stock falls rapidly I instantly check the news about my company to see if there exists some fundamental reason for the fall and if there is none -- I usually start thinking about whether it makes sense to buy even more of it while "stupid" speculators let it become cheap.
- popcorncowboy 4y ago
  All investing is fundamentally a prediction about the future. Getting comfortable with a level of risk, doesn't change the fact that all predictions about the future are definitionally speculative. "Investing" vs "speculating" is a matter of degree, not kind.
  - sime2009 4y ago
    Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. Speculating, like gambling is a zero sum game (at best). Any gains come directly from other players. They are inherently risky. There is a qualitative difference here.
    - lordnacho 4y ago
      No, GP is right. "Speculating" is merely a loaded term for investment that the writer does not approve of. There's any number of plausible reasons why one person's investment is another's speculation: - Is technical analysis investing or speculating? - How much do you need to know to call it an investment? Do you just need to have heard of FTX, or do you need to have gone to visit for due diligence? - How do you know it's zero sum? A business model may appear later that makes it positive sum. EOTD we're talking about decisions under uncertainty. That's literally all decisions. > Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. This part is particularly suspect. Let's say I make a crypto exchange and sell shares in the company. Let's say it pays dividends. Is buying my shares speculating or investing? Look at real estate, your other example. There's a massive real estate collapse going on right now, with enough empty units to fit all of Germany in it. Is that speculating or investing?
      - twawaaay 4y ago
        I would just like to point out this piece of financial knowledge: Dividends are actually the same as selling a piece of your investment. The moment dividends are paid the share price falls by exactly the amount of dividend paid. One way to think is that the second before the dividends are paid everybody included the dividend in the valuation of the share price. They expect the dividend to be paid to them. One second after the dividend was paid they no longer include it in the valuation making the share price worth less to them exactly by the amount of dividend paid. If you had a piggy bank with $100 bill in it and a cookie that is promised to you if you hold the piggy bank with the bill in it at certain time, the piggy bank is worth $100 and a cookie. But once the deadline passes you can no longer get the cookie and the piggy bank converts to being just a regular piggy bank with $100 bill and no cookie promised. Another way to think is that the company just gave off 1% of their value to shareholders in form of cash making the company 1% poorer. So if you had a share price of $100 and you expected $1 dividend, the second after the dividend is paid you are left with a share worth $99 and $1 in cash which is exactly what would happen if you just sold 1% of your shares. And because nobody is surprised by the dividend, the fact of paying it has already been included in the valuation well in advance of payment. There is no reason for the valuation to change due to payment of the dividend (other than the company losing exactly the value they paid in dividend). So, to summarise: >> Traditional investments have ways of generating and returning money without selling the asset itself This is false, as shown by my above explanation. Dividends are not generating anything and are actually the same as selling portion of your asset.
  - quickthrower2 4y ago
    As is having any kind of asset, even cash. Cash being a really bad speculation in general (although good on occasions for short periods).
- laserlight 4y ago
  These are exactly my thoughts. Yet, success of an investment depends on price after all, and I feel like I can never be sure whether the current price is an expected value of business prospects, is pumped by never-to-be-realized dreams of bozos, or is downright a long-running pump-and-dump scheme. I'm afraid markets behave more like a Keynesian beauty contest.
  - twawaaay 4y ago
    Valuing a business is not easy but it is not hopeless. Imagine somebody in your family has a grocery store and asks you to invest in it so that they can expand the business. Do you know them as a person? Do they have track record of being truthful? Frugal with money? Resourceful? Do they have track record of keeping their word and succeeding at projects? Is their store doing better or at least as good as competition? Do their explanations of why they are going to succeed make sense? Do you have some knowledge about running a grocery store? If you have, this can help you a lot with filtering truth from BS. If you do not, maybe it is worthwhile to get at least a little bit of knowledge? While you can't predict the future there is a lot of signs of what you can expect from the person or business and if the investment is significant enough you should make sure to get at least some knowledge in the area. Ideally, you would invest in things you have some kind of expertise.
quickthrower2 4y ago
Reductively yes. Like all economic activity is gambling. If I get a job for X salary it is a bet I couldn’t get a higher paid salary somewhere else. If I buy a flight today I am betting it wont be on sale tomorrow. And so on.
UncleMeat 4y ago
When you buy a share of a business, people at that business innovate and change the business itself. The thing you buy and the thing you sell aren't identical. When you buy a bond you trade some money now for more money later under an organized system. When you buy gold or pork bellies or btc it cannot change. It cannot act. It can only sit there and hope to be resold at another price.

No, that is not true. The idea of speculating is "I don't care understanding the underlying business, the only things that matters is the price is going up". But that does not mean there are no people actually investing. Investing means you understand at least to some degree the thing you are investing in and you think it is sound investment -- meaning there is good enough chance the money you will put in it will get multiplied over time. When actually investing you don't really care about short term price changes. When my stock falls rapidly I instantly check the news about my company to see if there exists some fundamental reason for the fall and if there is none -- I usually start thinking about whether it makes sense to buy even more of it while "stupid" speculators let it become cheap.

popcorncowboy 4y ago
All investing is fundamentally a prediction about the future. Getting comfortable with a level of risk, doesn't change the fact that all predictions about the future are definitionally speculative. "Investing" vs "speculating" is a matter of degree, not kind.
- sime2009 4y ago
  Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. Speculating, like gambling is a zero sum game (at best). Any gains come directly from other players. They are inherently risky. There is a qualitative difference here.
  - lordnacho 4y ago
    No, GP is right. "Speculating" is merely a loaded term for investment that the writer does not approve of. There's any number of plausible reasons why one person's investment is another's speculation: - Is technical analysis investing or speculating? - How much do you need to know to call it an investment? Do you just need to have heard of FTX, or do you need to have gone to visit for due diligence? - How do you know it's zero sum? A business model may appear later that makes it positive sum. EOTD we're talking about decisions under uncertainty. That's literally all decisions. > Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. This part is particularly suspect. Let's say I make a crypto exchange and sell shares in the company. Let's say it pays dividends. Is buying my shares speculating or investing? Look at real estate, your other example. There's a massive real estate collapse going on right now, with enough empty units to fit all of Germany in it. Is that speculating or investing?
    - twawaaay 4y ago
      I would just like to point out this piece of financial knowledge: Dividends are actually the same as selling a piece of your investment. The moment dividends are paid the share price falls by exactly the amount of dividend paid. One way to think is that the second before the dividends are paid everybody included the dividend in the valuation of the share price. They expect the dividend to be paid to them. One second after the dividend was paid they no longer include it in the valuation making the share price worth less to them exactly by the amount of dividend paid. If you had a piggy bank with $100 bill in it and a cookie that is promised to you if you hold the piggy bank with the bill in it at certain time, the piggy bank is worth $100 and a cookie. But once the deadline passes you can no longer get the cookie and the piggy bank converts to being just a regular piggy bank with $100 bill and no cookie promised. Another way to think is that the company just gave off 1% of their value to shareholders in form of cash making the company 1% poorer. So if you had a share price of $100 and you expected $1 dividend, the second after the dividend is paid you are left with a share worth $99 and $1 in cash which is exactly what would happen if you just sold 1% of your shares. And because nobody is surprised by the dividend, the fact of paying it has already been included in the valuation well in advance of payment. There is no reason for the valuation to change due to payment of the dividend (other than the company losing exactly the value they paid in dividend). So, to summarise: >> Traditional investments have ways of generating and returning money without selling the asset itself This is false, as shown by my above explanation. Dividends are not generating anything and are actually the same as selling portion of your asset.
- quickthrower2 4y ago
  As is having any kind of asset, even cash. Cash being a really bad speculation in general (although good on occasions for short periods).
laserlight 4y ago
These are exactly my thoughts. Yet, success of an investment depends on price after all, and I feel like I can never be sure whether the current price is an expected value of business prospects, is pumped by never-to-be-realized dreams of bozos, or is downright a long-running pump-and-dump scheme. I'm afraid markets behave more like a Keynesian beauty contest.
- twawaaay 4y ago
  Valuing a business is not easy but it is not hopeless. Imagine somebody in your family has a grocery store and asks you to invest in it so that they can expand the business. Do you know them as a person? Do they have track record of being truthful? Frugal with money? Resourceful? Do they have track record of keeping their word and succeeding at projects? Is their store doing better or at least as good as competition? Do their explanations of why they are going to succeed make sense? Do you have some knowledge about running a grocery store? If you have, this can help you a lot with filtering truth from BS. If you do not, maybe it is worthwhile to get at least a little bit of knowledge? While you can't predict the future there is a lot of signs of what you can expect from the person or business and if the investment is significant enough you should make sure to get at least some knowledge in the area. Ideally, you would invest in things you have some kind of expertise.

quickthrower2 4y ago

Reductively yes. Like all economic activity is gambling. If I get a job for X salary it is a bet I couldn’t get a higher paid salary somewhere else. If I buy a flight today I am betting it wont be on sale tomorrow. And so on.

UncleMeat 4y ago

When you buy a share of a business, people at that business innovate and change the business itself. The thing you buy and the thing you sell aren't identical. When you buy a bond you trade some money now for more money later under an organized system. When you buy gold or pork bellies or btc it cannot change. It cannot act. It can only sit there and hope to be resold at another price.