Investing versus Speculating

It is important to make a distinction between these two terms.  To invest is to put money into an asset with the clear purpose of making a profit; when investing, there is an expectation that the investment will provide income or profit within an expected period of time.

When speculating, assets are bought in the hope that there will be an unexpected rise in the price or the asset will provide unexpected income.  To speculate is to take part in a high risk venture.  Speculating is essentially a form of gambling; taking the chance that the ‘investor’ will be lucky, that they will make a profit, but there is no certainty and considerable risk.

Most people have a perception of what these two words mean and therein lies the problem.  For example, if an ‘investor’ purchased a share and sold it a month later for a profit, it could be assumed that they had invested in a business.  This is not necessarily the case as they merely speculated.  The definition of invest has an implied timeframe associated with it.  

Our views on ‘speculative’ funds

At Chris Humphrey Private Wealth Management, we do not create speculative portfolios but create investment portfolios with specific tailored objectives.  This can consist of managed fund recommendations that use ‘speculative’ investment strategies.  However, we believe after considering the manager’s expertise, investment strategy and diversification benefits of the overall portfolio, our recommendations are not speculative.

Investment styles 

Investment style refers to the different style characteristics within a given investment/trading philosophy.

Examples include:

• Large, medium and small capitalisation;
• Value, growth and GARP investing;
• Passive and active management;
• Long and short;
• Pair and convergence trading;
• Fundamental investing ;
• Technical trading;
• Arbitrage;
• Top down and bottom up approach;
• Qualitative and quantitative investing;
• Absolute return funds; and
• Special situations.

For more information of the above investment styles please refer to our investment glossary.