Investment and Speculation

The terms investment and speculation are two different but often used in financial parlance by all classes of intermediaries.

The word investment means putting one’s money in a financial instrument for a fixed and regular income over a period of time. While the return on investment is studied and assessed before taking the investment decision protecting the capital invested is the foremost in the minds of the investor and there is no urge to grow the capital.

The word speculation means betting one’s money in a financial instrument with a hope of profit and risk of loss. It is common knowledge that nobody would bet his money a to incur a loss. But when one takes an investment decision based on unspecified return on income the element of unspecified loss of investment also creep in.

Speculation is synonymous with stock market as the market participant guess the price movement and then takes the investment decision. Share price movements are based on various factors like fundamental value of the stock or company, technical movement of the stock, political climate during a period and economic factors that tend to change the course of the business of the company thereby affecting the stock prices positively and also negatively.

Depending on the risk taking capacity of an investor he tends to become an investor or speculator in that particular stock. If the investment is based on dividend yield then the investor looks to the dividend paying record of the company and the power or capacity of the company to earn income. When the investment decision is made based on the envisaged capital appreciation of the stock then it becomes a wild guess wherein the element of speculation sets in.