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May 15, 2007
Investor or speculator?
Many of Wall Street's most colorful metaphors and fables come, unwittingly for most, from a book originally published in 1940 by Fred Schwed, Jr. (yes, that was his real name) called "Where Are the Customers' Yachts?" Schwed went to work on Wall Street in 1920 and wrote one of the enduring investment classics about his time there.
The book is simultaneously eye-opening and hilariously funny. More amazing is that many of its truisms seem prophetic given the passage of almost 70 years. It just goes to show, that for all the changes we have experienced in the investment business, not much has changed at all. Everything old becomes new again.
One of the passages in this book which caught my attention was the following description of investing in comparison to speculation:
Speculation is an effort, probably unsuccessful, to turn a little money into a lot.
Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.
If you take a thousand dollars down to Wall Street and attempt to run it up to $25,000 in the course of a year, you are speculating. If you take $25,000 down there and attempt to earn a thousand dollars a year with it (by buying twenty-five four-percent bonds) you are investing. The odds against your being successful in the first venture are roughly 25 - 1. The odds against the success of the second venture are "odds on", or something like 1 -25.
Jason Zweig correctly points out in the foreword, "Today, as in Schwed's time, people who try to get rich quick still insist on calling themselves 'investors' - even though they are clearly speculators."
I believe in investing, not speculation. I believe this because my goal is to make money, not lose it. But the difference between investing and speculation is, as Schwed himself points out, only a matter of degree. So where do you draw the line? How do you define which is which? What criteria do you use?
I would love to know your thoughts on the topic. Do you see a difference? Which are you? Did you set out to consciously do one or the other? Let us know by posting your comments below.
Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
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Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas - Fort Worth. This blog is primarily devoted to empowering individual investors with information to help them be good stewards of their money. Above all, it is about achieving true financial success. Kim's book, How To Be the Family CFO: Four Simple Steps to Put Your Financial House in Order is in bookstores now. Order yours from Amazon or other fine booksellers today.
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