The difference between Investing and Speculating is much larger than Wall Street would have you believe. In fact, they could not be two more different activities. Speculating is gambling. Investing is intelligent decision-making.

Below are some excellent definitions of a Speculator and an Investor taken from Ben Graham and John Maynard Keynes.


“If you are a speculator, your decision to buy or sell is based on what you believe about the near-term direction of price.” – Ben Graham

“…speculation is the activity of forecasting the psychology of the market.” – John Maynard Keynes


“If you are an investor, your decision to buy and sell is based on the underlying economics of the stock you own.” – Ben Graham

“Investing is an activity of forecasting the yield on assets over the life of the asset…” – John Maynard Keynes

Now – think about what kind of activity you are encouraged to engage in when you watch CNBC (especially the commercials) or read most research reports. Even worse, think about what an E*Trade advertisement suggests ~ “in your spare time, you are able to outperform professional investors, most of whom spend million of dollars and work 60 hours a week on nothing but analyzing stocks.”

Of course, they want you to speculate…because they make money whether you buy or sell. They want volume and are happy if you buy today and sell tomorrow – again and again. Volume generates commissions. Commissions cost you and lower investment returns. Ergo, your broker’s interests are often not aligned with your best interests.

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