Today there is but a thin line that differentiates an Investor from a Speculator. According to Benjamin Graham - The Father of Value Investing -
Now take for example a Short seller. Is he now an investor or is he a Speculator? A short seller is one who borrows shares of a company and sells them with a hope that the prices of the shares will fall and he would be able to buy back the shares at a lower price and return them. The difference in the price is the return he gets. If the price of the share increases, he loses. Now where do you see any investment happening? Where is the principal he is investing and what is he investing his money in? What is the difference between this short seller and a punter betting on a horse who he feels will win?
According to Warren Buffett, a stock investment is like starting your business. Suppose you start a business (say tuition classes) next Monday morning, do you sell the same business in the evening? The answer is a definite NO. Then how can a short seller be called an investor? Short selling is definitely speculation and it should be treated as such.
The sorry state of the Stock market Scenario can be judged from the fact that even the Indian Regulator SEBI, calls people who engage in Short Selling "investors". Refer the following link for the same www.sebi.gov.in/commreport/rep40.pdf. Here they mention "Presently, there is no prohibition on short selling by retail investors".
An individual should realize that what he is doing is not investment, but speculation. He should also realize the risks associated with speculation. Risk of speculative activities like Short Selling and Futures trading is more than just the loss of the Principal. It is a bottomless pit.
F&O/Derivatives Trading, Short selling, Buying shares with an intention to sell within an year are all a form of speculation. Just to get a notion how dangerous derivative trading/speculation may be for a layman/lay investor, please refer the following article on Forbes
http://http//www.forbes.com/global/2009/0316/030_harvard_meltdown.html
If Harvard can lose money speculating, why should you speculate?
BM54HYANS9VA
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting this requirement are speculative.The most important point of this definition is "Investment promises safety of principal and an adequate return".
Now take for example a Short seller. Is he now an investor or is he a Speculator? A short seller is one who borrows shares of a company and sells them with a hope that the prices of the shares will fall and he would be able to buy back the shares at a lower price and return them. The difference in the price is the return he gets. If the price of the share increases, he loses. Now where do you see any investment happening? Where is the principal he is investing and what is he investing his money in? What is the difference between this short seller and a punter betting on a horse who he feels will win?
According to Warren Buffett, a stock investment is like starting your business. Suppose you start a business (say tuition classes) next Monday morning, do you sell the same business in the evening? The answer is a definite NO. Then how can a short seller be called an investor? Short selling is definitely speculation and it should be treated as such.
The sorry state of the Stock market Scenario can be judged from the fact that even the Indian Regulator SEBI, calls people who engage in Short Selling "investors". Refer the following link for the same www.sebi.gov.in/commreport/rep40.pdf. Here they mention "Presently, there is no prohibition on short selling by retail investors".
An individual should realize that what he is doing is not investment, but speculation. He should also realize the risks associated with speculation. Risk of speculative activities like Short Selling and Futures trading is more than just the loss of the Principal. It is a bottomless pit.
F&O/Derivatives Trading, Short selling, Buying shares with an intention to sell within an year are all a form of speculation. Just to get a notion how dangerous derivative trading/speculation may be for a layman/lay investor, please refer the following article on Forbes
http://http//www.forbes.com/global/2009/0316/030_harvard_meltdown.html
If Harvard can lose money speculating, why should you speculate?
BM54HYANS9VA
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