Speculator or investor?
Tuesday 11 August 2015
Many money investors are wondering why they hardly make any money in the stock market over a long period of time.
Wrong timing, entered the marker too late, sold too soon ......
it is always the same. What matters is a clear definition: Am I an investor or am I a speculator? Nothing in between.
But what defines a speculator? And what is the actual difference from being an investor?
An investor is concerned with the fundamental valuation of the company, in which he intends to invest in the stock market. He forms an opinion about the quality of the company and its products. He looks at earnings and the balance sheet, the rankingin the market, the company culture and future prospects of the company.
He finally comes to a decision: to either buy the shares or leave them alone. Fluctuating market prices will not influence him. He is only interested in his own assessment of the value of the company, and not that of the broker. In the long run his calculation of the value will be reflected in the market price of the stock.
The speculator, however, is focused on the market price. He calculates and ponders, how the price of the stock company will move. What the companies do, is more or less irrelevant to him. Often speculators do not even know what the company manufactures, the name of the Chief Executive Officer or where the company's is headquarters are.
The speculator needs to be well informed about financial markets and the mass psychology that affects prices in markets; not with the individual stock.
The famous financier B. Baruch, who successfully survived the big crash on Wall Street in 1929, has long ago aptly captured the essence of speculators : "The true speculator is a person who formulates forecasts and acts before the event in question occurs. He must, like a surgeon, be able to explore a mass of complicated and contradictory details before he determines the important factors. Then he has to be able to skillfully operate with a cool head on the basis of these factors.
It really difficult to determine factors which move prices in the market because we have to penetrate a thick veil of human feelings and emotions for this.
Price fluctuations are not caused by impersonal economic forces and changing events, but by the reactions of people to news. The constant problem for speculators is to separate the hard economic facts from the emotional response of the people who act on those facts. There is no better way to get to the
heart of this.
A solution for success in the market: Either I get involved and try to be a fundamental value investor or I do my utmost to become a shrewd speculator. Whoever sticks to his chosen path has a good chance to succeed. One way to guarantee failure: First operate as a speculator and then switch to become a fundamental value investor depending on the situation and your mood swings. Sometimes one way or another but it all ends in failure.