Hi all,
I was looking at investing in some geothermal companies, however I’m told this is speculative. What is the difference between this speculative type buying and long term investing?
cheers
ok, so speculations has nothing to do with whether a company is established well or not?
Also can someone tell me how a companies ‘blue chipness’ has anything to do with whether it is high risk or not?
what’s the difference between speculative investing and long term, and how do you tell the difference?
Mon, Mar 8, 2010
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March 8th, 2010 at 7:21 am
long term investment is investment that’s tied up in capital equipment and the like, so therefore is not instantly reclaimable.
Speculative investment is the type that can be reclaimed within a matter of seconds.
March 8th, 2010 at 8:13 am
speculation is when you buy a stock for example with the intention of selling it within a short period to make a small profit, typically the stock is kept for days to few months only
long term investment is when you buy a stock without the intention of selling it quickly, so you forget about the stock for at least a year and hope for a decent price appreciation in the stock
March 8th, 2010 at 8:51 am
speculative investment is when feel that the share will go up shortly and u will be able to reap the benifit for it. u may lose as well. long term investments is when u buy the share for keeps sake enjoy the dividents that company declares. sell only when u need money for some other urgent purpose
March 8th, 2010 at 9:00 am
There are two differences: the time scale and the way of selecting the stocks.
A speculator tries to make his profits on a short time scale, from intraday to at most a few weeks. He plays the market long and short, often with leverage. He doesn’t really care about the fundamentals of the stock, he is interested in violent moves.
An investor buys a stock by looking at the fundamentals and is in a trade for a few years. He looks for value or growth. Value stocks are those with good fundamentals, but beaten down and at present undervalued. The investor buys them and waits until they become in favor again.
Growth stocks are stocks on the way up, expanding businesses selling something new, like a new technology. They still have to prove themselves, and the big idea can turn out to be a dud. Taken on their own such stocks are speculative bets: you either win big or you loose. But a diversified portfolio of say, 20 of such stocks is a good investment, IMO. Sure some will be duds, but two or three big winners will compensate for that.
As for you geothermal stocks, they fall in the growth category. So it’s an investment, but only when included in a diversified portfolio.
Blue chips are typical well established companies. A big part of their risk is market risk, but intrinsically they are less risky: it’s not very probable they will go belly up (although these days one never knows).
March 8th, 2010 at 9:04 am
by the time you hold a stock.
March 8th, 2010 at 10:04 am
Micheal,
In the stock market speculation has nothing what so ever to do with the time-period over which a position is held or the perceived risk of that position. A distinction should be made however between speculating and investing.
A bit of historical perspective; 150 years ago a group of investors would sponsor the voyage of a clipper ship from Boston, around “the Horn” of South America to San Francisco and back. Goods would be transported in both directions and the profits shared by the investor group. While there was an element of risk the enterprise wasn’t speculative because there was a reasonable expectation of profit to be had.
In relation to the stock market an investment is one in which the company involved pays dividends, in other words shares the profits with the investors. Over the term of the investment the share price of the stock may increase or decrease but this is a consideration secondary to the original intent of the investment, which was earning a share of the profits.
Because most companies don’t pay dividends the great majority of buying and selling in the stock market today is purely speculative. We are “speculating” based on whatever analysis and presumptions we choose that the stocks price will either advance (going long) or retreat. (going short) Because we are not clairvoyant we may be right or wrong in our assessment. If we buy a stock because we believe the share price will increase over the next ten years it is no more or less a speculation than if we buy a stock presuming its price will increase over the next ten minutes. The holds true for decreases. If there is not a reasonable expectation of a dividend payment there is nothing left for us except the speculative hope that we are right in our assessments.
Hope this clarifies things for you.
Regarding the inherent riskiness of “Blue Chip” stocks an article which addresses the issue of risk assessment can be found at the link below.
Timothy