This document discusses the differences between investment, speculation, gambling, and arbitrage. Investment is characterized as having a long time horizon of over 12 months, limited risk, stable income from enterprise earnings, and cautious investors using their own funds. Speculation has a short time horizon under 12 months, high risk, uncertain income from price changes, and aggressive investors using both own and borrowed funds. Gambling involves risk for the sake of risk with no investment view. Arbitrage earns risk-free profits from temporary price differences in efficient markets.

1. Investment Analysis &
Management
Investment v/s Speculation –
Arbitrage – Gambling
Presented by Binto Mathachan

2. Investment = Speculation ?
 Investment- Sacrifice of certain present value for
the uncertain future reward
Financial Investment-An exchange of
financial claims/securities-Focused on real
investment concept of businessman “The
employment of funds with the objective of
realising additonal income or growth in value
of investment at a future date”

3. Investment = Speculation ?
 Speculation- Short run phenomenon
investment
Buy assets - expectation of earning
profit-from subsequent price change and
sale – do not plan to own for long period .
Investment
Speculation

4. Investment v/s Speculation
Basis Investment Speculation
Time Horizon Long term – beyond 12
months
Short term – holding
assets from one day up to
one year
Risk Limited High
Source of income Earnings of enterprise Change in market price
Stability of income Very Stable Uncertain and
Use of funds Own funds Own Funds , borrowed
funds
Type of contract Creditor Ownership
Psychological attitude of
participants
Cautious and conservative Aggressive and daring

5. Gambling
 An act of involving an element of risk .
 Game of chance
Typical- chronic - repetitive experience
Displays persistent optimism without
winning
Never stops while winning
Risk more than afford (which is created
unnecessary and artificially)
 Purchasing financial assets without a view of
investment
 May or may not be legal .

6. Arbitrage
 Market activity in which a commodity
is bought and then sold quickly for a
profit which substantially exceeds the
transaction cost
 Purchasing of stock of a future
takeover target with an expectation of
high price
 Profits earned – Risk free – Stabilized
.