On Apr 12, 2008, at 1:49 PM, Doug Henwood wrote:
>
> On Apr 12, 2008, at 11:05 AM, Shane Mage wrote:
>
>> Warren Buffet has done nearly as well--and over a longer period--with
>> absolutely *no* speculation.
>
> My definition of speculation is buying securities with the hope of
> selling them later at a higher price (or shorting them with the hope
> of buying them back at a lower price, but let's bracket that for
> now). That's exactly what Buffett does.
How can it be maintained that "later" applies in the same way to tomorrow as to 30 years in the future? This definition wipes out any distinction between "speculating" and "investing." For me, "investing" is purchasing with the expectation of an income steam (capitalised or consumed) in money or in kind (the aesthetic appreciation of a work of art, the advantage of living in one's own home, the drinking of a wine that has matured in the cellar, etc.) while speculating involves indifference to anything other than hoped-for difference between purchase and sale prices. Hoarding would be a (negative) form of speculation.
Speculation also is a negative-sum game (counting transaction costs) Every penny made by Soros in betting against the pound was lost by other speculators who bet (actively or passively) on it. Investing, buying an asset for its income stream whether or not its price increases, is a positive-sum game where the return to investors far exceeds their occasional losses.
Shane Mage
"Thunderbolt steers all things...it consents and does not consent to be called Zeus."
Herakleitos of Ephesos