Hi, I'd just like give a small intro before the video itself actually starts.
Welcome to this Alencho video on the difference between speculation and investment.
I would say amongst the general public there is a large degree of confusion or
misunderstanding between these two terms.
We see headlines in the business press, for example, referring to things like investors today sold off dramatically, or
investors today snapped up this share, or investors today dumped that share.
I would say that probably most of those are, in fact, speculators.
So, on with the video. Enjoy!
People say that investing in shares is not investing, it's simply speculating.
Well some people do invest in shares, or (rather) speculate in shares
But I wanted to spend today, a little bit, talking about the difference between investing and speculating.
Now, speculating is when you buy something, and then sell it immediately, or perhaps in the short term,
in order to make money from the fact that you have sold it.
So, it is the buying and the selling that the speculator does, in order to make her money.
The investor, on the other hand, buys an asset, and then holds onto it, and that in itself earns the investor a cash flow.
So, a very simple example: if you buy an apartment and you buy it in order to sell it, then you are speculator.
So you buy an apartment for a hundred thousand, you sell it six months later for 120,000, or 150,000 if you very lucky
then you'll make a profit on the sale of the asset, and that is your intention.
If that is your intention then you are a speculator.
If, on the other hand, you buy the flat in order to hold it and rent it out to other people,
and you then therefore derive an income, or a cash flow, by virtue of holding the asset, then you are an investor.
Now, similarly, we can treat shares as a speculator, or you can treat shares as an investor.
So, if you treat shares as a speculator then
you will buy shares in order to sell, at a later date to some other guy who you hope will pay a higher price than you paid for the share.
Nothing wrong with that, it's a different philosophy, a different mindset.
If you buy shares as an investor, then you are buying shares to hold them,
to keep the cash flow, which means dividends or internal cash flow which the company is deriving
and then using for further growth which means more revenue and more profits later.
Either way, you will hold on to that share, because you're interested in the cash flow in the future coming to you.
So that's the difference between an investor mindset and a speculator mindset.
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