What is speculation and why did it partly cause the great depression?
Speculation is the short term investment in company shares with the intention of selling them in a short period of time (say 1 week) to profit from the increase in share price that you “speculate” will happen. Investment in shares requires an understanding of the value of the business – as a shareholder you effectively own a “share” of the business. A true investor will be able to provide an estimation of how much a business is worth based on the property and equipment the company owns, combined with the current state of the company finances and the likely future profit. If you speculate you are purely interested in the short term fortune of a company and do not have the time to accurately value the shares – much in the same way as if you drove past a car lot at night and based your buying choice from what you saw as you drove by. So – a speculator tries to chose which shares will go up in value based on no understanding of what the shares are worth and should be worth in the future. A
