Financial Modeling Self Study Program

Is investing in stocks really investing?

No.  Buying stocks is speculating.  Even if you’re buying value stocks.  Even if you’re planning to hold stocks for the long-term (whatever that means).  I wish more people understood this.  Anytime you spend money on the hope and prayer that the thing you bought appreciates in value, you are speculating, not investing.  Here’s another way to think about it.  If you have significant control over your spent money (say, starting a business or building a new factory) then you’re investing.  If you don’t then you’re speculating.

Oh, and one last thing:  speculating is just a more acceptable synonym for gambling.

5 comments to Is investing in stocks really investing?

  • Anonymous

    How about fixed income/treasuries securities? Would those be more in line with investing?

    • Andrew

      Please understand that we’re really talking about semantics here. I don’t think there is a perfectly defined line between what I would call investing and what I would call speculating. Having said that, I suppose if you are holding Treasures or highly rated corporates to maturity for the coupons (interest) then you could call that investing. Better yet, call it saving. If you are buying Treasures or highly rated corporates hoping the value appreciates (e.g. because of Fed policy, etc.) then I would call that speculating. If you are buying high yield (i.e. junk bonds) then you are probably speculating regardless.

      Feel free to reply if you have further thoughts.

      -Andrew

  • Anonymous2

    Hi

    Regarding your opinion on holding for the long term, would it still be speculating even we buy for the intention of expecting that the dividends will increase overtime?

    I know that the part of expecting in dividends rise is somewhat speculating that it will increase, but is it still called an investing?

    I only ask this because I would like to know whether investing in stocks such as aristocrats stocks and spend future-dividends for a living is a reasonable thinking?

    Thank you

  • Anonymous2

    Ps. I also ask this as, with what I understand, your opinion is contradicting with the concept of positive sum game of stock investing.

    If my point is not valid please kindly correct my belief.

    Thank you

    • Andrew

      As I tried to explain in a previous comment, this question is an academic one, not a practical one. In other words, I’m not saying that you shouldn’t buy stocks or that it is unreasonable to buy stocks. All I’m saying is that buying stocks should be called speculating not investing. Obviously, most people including those on Wall Street as well as economists wouldn’t agree with me.

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