Why
is investment in shares very often confused with Gambling and Speculation? Is
there a line of difference between these three? Yes, The difference between investment
and speculation lies in the degree of risk that you are willing to accept for
attaining your goal. The investor takes calculated risks and plays safe in
return for moderate profits. The speculator deliberately takes high risks in
the expectation of getting disproportionately greater profits. In the stock
markets, the speculator generally tries to make short-term profits out of price
fluctuations and usually ignored dividends. In addition, he often plays around
with borrowed money instead of using his own funds. On the other hand, an
investor generally uses his own money, and buys shares with the intention of
earning both long-term capital gains and dividends. These are the essential
differences between investment and speculation. When you buy a share after
making proper assessment of a company’s future prospects, your risk is minimal
and limited. When you do so on the basis of insufficient knowledge, incomplete
analysis, a “hunch” or a “feeling”, the risks are naturally much greater. The
former is investment, the latter speculation. Gambling is only an extreme form
of speculation.
