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Investment Vs Speculation




                            1
What is Investment ?
• Investment involves making a sacrifice of in
  the present with the hope of deriving future
  benefits.
• Postponed consumption
• The two important features are :
  – Current Sacrifice.
  – Future Benefits.



                                             2
Cont…
• It also involves putting money into an asset which
  is not necessarily marketable in the short run in
  order to enjoy the series of returns the
  investment is expected to yield.
• People who make fortunes in stock market and
  they are called investors.
• Decision making is a well thought process.
• Key determinant of investment process:
  – Risk
  – Expected Return


                                                   3
What is Speculation?
• Speculation is a financial action that does not
  promise safety of the initial investment along
  with the return on the principal sum.
• Its is usually short run phenomenon.
• Speculator the person tend to buy the assets
  with the expectation that a profit cane earned
  from subsequent price change and sale.


                                                4
Process of Investment and Speculation




                                        5
Investment vs. Speculation

            Basis                 Investment            Speculation




1. Basis of acquisition   Usually by outright   Often on Margin
                          purchase



2.Marketable Asset        Not necessary         Necessary



3.Quantity of risk        Small                 Large



                                                                      6
Investment Vs Speculation
           Basis                     Investment              Speculation


4.Insider trading analysis   Not possible             Based on insider trading
                                                      transaction happen


5.Stability of Income        Very stable              Uncertain and erratic



6.Sources of income          Earning of enterprises   Change in market price



7.Length of commitment       Long run                 For a short time period


                                                                                 7
8

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Speculation vs investment

  • 2. What is Investment ? • Investment involves making a sacrifice of in the present with the hope of deriving future benefits. • Postponed consumption • The two important features are : – Current Sacrifice. – Future Benefits. 2
  • 3. Cont… • It also involves putting money into an asset which is not necessarily marketable in the short run in order to enjoy the series of returns the investment is expected to yield. • People who make fortunes in stock market and they are called investors. • Decision making is a well thought process. • Key determinant of investment process: – Risk – Expected Return 3
  • 4. What is Speculation? • Speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum. • Its is usually short run phenomenon. • Speculator the person tend to buy the assets with the expectation that a profit cane earned from subsequent price change and sale. 4
  • 5. Process of Investment and Speculation 5
  • 6. Investment vs. Speculation Basis Investment Speculation 1. Basis of acquisition Usually by outright Often on Margin purchase 2.Marketable Asset Not necessary Necessary 3.Quantity of risk Small Large 6
  • 7. Investment Vs Speculation Basis Investment Speculation 4.Insider trading analysis Not possible Based on insider trading transaction happen 5.Stability of Income Very stable Uncertain and erratic 6.Sources of income Earning of enterprises Change in market price 7.Length of commitment Long run For a short time period 7
  • 8. 8