Forum: money.stackexchange.com
Tags: <investing><terminology><speculation>
Title: What is the difference between speculating and investing?
Question: I keep hearing people saying that a speculation is NOT an investment, but isn't it really just investment with high risk?

Answers:
sents: text: Classic investing guru Benjamin Graham defines "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return."
text: He contrasts this with speculation which is anything else (no thorough analysis, no safety of principal, or no adequate return).
text: The word "adequate" is important, since it contrasts adequate returns with those that are either lower than needed or higher than necessary to reach your goals.
answer_details: author: money.stackexchange.com/users/1829/Havoc P
score: 10
sents: text: Speculation means putting your money on a hunch that some event may occur, depending on current circumstances and some future circumstances.
text: So either you win huge or lose a lot.
text: Investment is a conscious decision made on well defined research and grounded on good reasons i.e. economy, industry, company reports etc.
text: Here is a link on wikipedia with more details on Speculation .
answer_details: author: money.stackexchange.com/users/2001/DumbCoder
score: 8
sents: text: Investing is balancing the desire for return against the various risks that your money is faced with.
text: There's also a recognition that an investment will be in place for some extended period of time.
text: Speculation is seeking short-term maximum return, without protecting yourself against risk.
text: "Speculation" or "Speculators" is often thrown out as a pejorative, but you need speculation to have a healthy market.
answer_details: author: money.stackexchange.com/users/1288/duffbeer703
score: 5
sents: text: In my opinion the difference is semantic.
text: A professional, or someone wanting to present an air of competence, is more likely to talk about investing in shares, as the word investment carries with it connotations of effort, energy and a worthwhile result.
text: Whereas, the word speculation implies the hope of gain but with the risk of loss.
answer_details: author: money.stackexchange.com/users/2072/Derek Jennings
score: 4
sents: text: I consider speculation to be a security purchase where the point is to sell it to someone for a higher price.
text: Day-trading is completely speculative.
text: I consider Investment to be a purchase you make for its underlying value.
text: You are buying it at that price because you believe the present value of the future payments is higher than the price you are paying.
text: I may sell an investment if a higher price is offered than I think it's worth, or if the business situation changes, but I don't plan on it.
text: Hedging is a third type of security purchase, where you are decreasing your overall risk.
text: If you are a hog farmer, selling hog futures on the CME is hedging, because it locks in the amount you get per hog, regardless of what the price of hogs does.
text: Commodities markets only have hedgers and speculators.
text: Investors don't make sense, it doesn't have an underlying value.
answer_details: author: money.stackexchange.com/users/1686/DanTilkin
score: 3
sents: text: Colloquially, there's no difference except for the level of risk (which is an estimate anyway).
text: Classically, investment is creating wealth through improvement or production.
text: Purchasing a house with the intent to renovate and sell it for a profit would be an investment, as the house is worth more when you sell than when you bought it.
text: Speculation, on the other hand, is when you hope to make a profit through changes in the market itself.
text: Purchasing a house, letting it sit for 6 months, and selling it for a profit would be speculation.
answer_details: author: money.stackexchange.com/users/1739/Benjamin Chambers
score: 3
sents: text: Speculation is when someone else makes an investment you don't like.
text: The above is tongue in cheek, but is a serious answer.
text: There are several attempts at separating the two, but they turn into moral judgements on the value of a pure "buy and hold" versus any other investment strategy (which is itself doubtful: is shorting an oil stock more "speculation" than buying and holding an alternative energy stock?).
text: Some economists take the other route and just argue that we should remove the moral judgement and celebrate speculation as we celebrate investment.
answer_details: author: money.stackexchange.com/users/1788/luispedro
score: 2

Summary of the answers:
The difference is semantic and there is a different level of risk involved.
It is unclear that there is any definitive difference between the two terms, though some might suggest that the level of risk is a factor.