How does speculation differ from investing?
An investment is generally a longer-term view of the future cash flows of a particular business or other income producing asset. The price of that asset, will in the long run, be affected by those futures cash flows. A successful investment requires the ability to properly forecast future cash-flows and when those cash flows could come to and end. Speculation typically takes a much shorter-term view and is an effort to anticipate the psychology of the market and market participants. A diligent speculator performs various forms of analysis on a given security, commodity, or other underlying asset in an attempt to play the expected change. The key to successful speculation is to only speculate when the odds are stacked heavily in your favor, and never commit too much of one’s capital to any given speculation.
