What constitutes towards an investor and what does it mean to be a speculator? In this article, I delve into 5 key differences between the investor and speculator.
1. Long term versus Short term
There are many differences in how each and every individual sees what is defined as "long term" or "short term". Some define 1 month as short, while others, long. As a general rule of thumb, investors generally invest in the long term while speculators focus on the short term.
Investors love things that provide them logical and sensible investments that bring in reliable and stable profits. Speculators on the other hand, love anything that is new and on the hype as of the moment.
2. Differences in emotions
A logical investor is not swayed by his emotions in terms of investing. He understands that emotions are what generally move the market, but it does not mean that it has any LASTING value in the long run.
Speculators on the other hand, event he logical ones, predict and through understanding of human emotions, use their emotions to trade in the market. They buy based on their gut feelings to "follow the crowd or trend". They are sure that by following the trend, there is no way they can lose as in both up, down or stable markets, they are able to make money. Either way, human emotions are the main driving force in the decision of speculators, even if the emotion does not come from them.
3. Technical versus Fundamental Analysis
Speculators are guided by charts, Japanese candle sticks, brand new news bulletins, newspapers and shocking headlines by corporations to decide when to buy and sell. They rarely if ever, delve into the history of the business itself. They do rarely, if ever, understand the underlying concept of the economic conditions and how it will affect the business as a whole. As their goals are merely usually confined towards a year, things like these do not generally rouse interest towards them.
Investors, on the other hand, browse through and understand the business that they are buying into. They understand that in order for them to go for a long term, the company itself must be able to sustain for the long term. For that to happen, the company must possess a stable and predictable future based on excellent economics in their favor. In order to do that, they are guided by the company's annual reports and they look and talk towards the company's management directly to learn and understand the business.
4. Voting machine versus Weighing Machine
The investor views the market as a weighing machine rather than a voting machine. They understand that the market, in the long run, will experience high and low cycles. However, the core value of the business itself, given the underlying economics of proper management, will in due time, revert and show its value based on the price of the business. They understand that if a company is consistently selling below its true worth, something is already generally wrong within the management or the economics of the business. The price in the long run is reflected as a weighing machine rather than a voting machine.
The speculator on the other hand, views the market as a voting machine. The more people vote against or with a certain hyped up issue, the more opportunities and emotions will sway to. They target and run towards the crowds and the most popular issues. Driven by emotions and greed, they love issues which provide the wild excitement in the price. The price is reflected on how popular the issue is at the given time, rather than how the business is actually worth.
5. The Doctor versus the Pianist
If you were to study real hard and put in dedicated effort and considerable amount of time into becoming a doctor, you would generally be able to become one through enough effort. You would be able to live of well enough to depend on your income generated from being a doctor with proper spending habits.
Pianists, on the other hand, are what you would call performing artists. In order to become and excel in one, you need more than what one would call just pure dedication and effort. You would need to have a very special set of characteristics in you that people will be able to take notice and make yourself stand out. You would only be able to succeed if you have this special quality.
It is the same for both speculators and investors. Investors are generally doctors. With enough effort, dedication and practice, you would be able to pass out generally well. You will be able to get rich quick, but with proper discipline, you would be able to get rich slowly. Unexciting, but steadily.
Being a speculator however, you are trying to win against many people who aspire to win money from you. People who have dedicated 20-30 years of their lives trying to perfect their "art". In order to stand out and win over them, you would need a special quality that stands out way beyond the over speculative market. You are a pianist.
Summary
All in all, be it a speculator or investor, in most cases, one must understand that they need both mindsets and frames to succeed in both long and short terms. Opportunities are always there in both passageways. It is only up to you to spot and use them
| To Your Success, Aaron Leow Article Source: http://EzineArticles.com/?expert=Aaron_Leow | |
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