by Helmut Schmidhofer
Investors seek to park their money in assets that produce an income. Investors are less concerned about changes in the value of the asset as they are in the return. Of course, an appreciating asset is preferred to one that loses value, but the latter is not off-limits if it is appropriately discounted.
Investors are less likely to gear their funds, unless the cost of gearing is less than the expected return from income and capital gain.
Investing can be shown to be enormously profitable for people who are disciplined in the art of investing.
Speculators seek assets that are likely to change in value. The income from the asset is immaterial to them.
Consequently, speculators usually gear their funds. The better the gearing, the more attractive is the asset to the speculator.
A gearing of 1% deposit or margin means that every favourable move of 1% in the value of the asset produces a 100% profit. Of course, an unfavourable move of 1% at the start of the trade means a wipe-out. Speculators trade assets on either the long side (value expected to increase) or short side (value expected to decrease).
Speculating can be shown to be enormously profitable for people who are disciplined in the art of trading.
People who try to be both investor and speculator are usually fodder for the ones who are disciplined in just one field.
The assets looked at by both groups are the same - real estate, bills and bonds, stocks and shares, commodities and currencies. However, the yardsticks are different - income for investors, price volatility and gearing for speculators.
In a well-behaved market, investors set the tone. When the income from an asset no longer justifies the cost, the value of the asset drops.
A market that is driven by speculation is not well-behaved. The test for the value of an asset is not the income it produces but is the expectation of a future higher price.
This expectation can reach manic proportions, as numerous historical manias illustrate. Inevitably, a mania is followed by a panic, a crash, and a period of good behaviour, then the cycle starts again.
This site is for speculators. It deals with tools speculators use to master their art. The tools can be divided into two categories - fundamental analysis and technical analysis.
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