Portfolio Management/Consideration
Riki Hermansyah, MME 16, EM
SGU
A. Speculation
Speculation is a chance to earn abnormal
high rate of return in a short duration of
time. In simple words, it means
speculation is the purchase of a good in a
hope to earn high rate of return from the
sale of the good in a short duration. In
case of speculation, high risk and short
time are the two major features
Others are speculation involves trading a financial instrument which is involving
high risk, in expectation of significant returns. The motive is to take maximum
advantage from fluctuations in the market. Description: Speculators are
prevalent in the markets where price movements of securities are highly frequent
and volatile.
B. Gambling
the betting or staking of something of value, with
consciousness of risk and hope of gain, on the
outcome of a game, a contest, or an uncertain
event whose result may be determined by
chance or accident or have an unexpected result
by reason of the bettor's miscalculation
(ref: https://www.britannica.com/topic/gambling)
The term Gamble refers to an act involving high level of risk. Normally
Gambling refers to having risk without anticipation of increased expected
return. Gambling involves more risk as compare to investment and speculation.
It purely depends upon luck. In simple words, it is a game of luck and chance.
Gambler also enjoys thrill from gambling and he will never stop if he is winning
and sometimes gambler takes more risk than he can afford.
C. Investment
An investment is an asset or item acquired with the goal of generating
income or appreciation. Appreciation refers to an increase in the value of
an asset over time. When an individual purchases a good as an
investment, the intent is not to consume the good but rather to use it in
the future to create wealth.
An investment always concerns the outlay of some capital today—time,
effort, money, or an asset—in hopes of a greater payoff in the future than
what was originally put in.
For example, an investor may purchase a monetary asset now with the
idea that the asset will provide income in the future or will later be sold at
a higher price for a profit.
(Ref : https://www.investopedia.com/terms/i/investment.asp)
Because investing is oriented toward the potential for future growth or income, there is always a certain level of
risk associated with an investment. An investment may not generate any income, or may actually lose value over
time. For example, it's also a possibility that you will invest in a company that ends up going bankrupt or a project
that fails to materialize. This is the primary way that saving can be differentiated from investing: saving is
accumulating money for future use and entails no risk, whereas investment is the act of leveraging money for a
potential future gain and it entails some risk.
D. Investment vs Speculation
Description
Speculation
Investment
How to get profit
From price changes to the forces of
supply and demand
From the fluctuations in the value of assets in
the market due to external and internal
factors, such as political changes, economic
conditions, corporate actions, inflation, and
others
How to make a decision
Seeing uncertain market fluctuation
forecasts, relying on only a handful of
information and tending to ignore the
rules of analysis.
Speculator is often prepared to take high
risk in order to get high returns.
Using thorough analysis, such as fundamental
and technical analysis, and doing research
beforehand. A true Investor generally commits
his funds to low risk investment
Trading or investment
period
Tend to be short-term orientation to earn
very high profits, speculator is interested
in short-term dealing in securities.
Tend to be long term oriented with sustainable
profit. An investor employs his funds and will
wait for longer period to get returns
How to place the
capital
More interested in risking money on
something that is considered to be a big
profit, such as fried stocks, forex, crypto,
commodity markets. Speculators motive
is to have capital gains, rather than
steady flow of income.
Interested in investing in certain instruments,
such as blue chip stocks, which have strong
fundamentals, mutual funds, deposits, and
others. The investor is more concerned with
steady flow of income out of the investment.
He is interested in capital gains also.
Ref: https://www.cermati.com/artikel/spekulasi-spekulasi-saham-atau-investasi
E. Investment vs Gambling
Description
Gambling
Investment
Risk
Gambling involves taking higher risk
without demanding compensation in the
form of increased expected return.
No investment is completely risk free but a true
investor generally commits his funds to low risk
investment. He diversifies his portfolio, so as to
include more than one
investment, in order to maximize risk.
Time period and
Chance Factor
Gambling is shorter than investment. The
results in case of gambling depends on
chance. The results are
determined by roll of dice or the turn of
card.
Tend to be long term oriented with sustainable
profit. An investor employs his funds and will
wait for longer period to get returns
Risk Return Trade off
There is no risk and return trade off in
gambling and negative
outcomes are expected
investment involves trade-off between risk and
return, so as to get highest return at given level
of risk or to get least risk, at given level of
return. Also, positive returns are expected by
the investor.
Type of Risk
Gambling involves artificial risk
investment actively involves commercial risk.
attachment
Speculative Investment example
https://www.whitecoatinvestor.com/7-best-speculative-assets-to-hedge-your-portfolio/
#1 Gold
The best part about gold is that it has a long, long history. People have been using gold as an investment, currency, or
store of value for literally millennia. There is only a limited amount of it on the planet and new gold is only being
found/mined so quickly. Gold doesn't rust, leak, or degrade. While it can be somewhat volatile, its long-term returns
are well known. Essentially, over the centuries, it keeps up with inflation. The only time in history where that really
changed was in the decades after the conquistadors hauled a bunch of gold out of the Americas back to Spain,
launching a pretty severe bout of inflation in Europe.
The downside of gold is that it must be stored, protected, and insured.
#2 Empty Land
I don't consider income-producing real estate to be a speculative asset. It can be valued. But land that just sits empty?
That's a speculative asset. Maybe it's an empty lot you buy in a town where lots of people are moving in. Maybe it is
some land on a stream that is currently 10 miles out of a rapidly growing town. Maybe it's land on which you hope to
find oil. Either way, if it doesn't produce income, it's a speculative investment.
Speculative Investment example
#3 Cryptocurrency
The best part of a cryptocurrency investment is that your returns may be absolutely spectacular. If the cryptocurrency you invest in
actually becomes the de facto currency in the future and you got in on the ground floor before anyone else had heard of it, you could
literally become a billionaire with an investment small enough that losing it all won't affect your financial life.
#4 High-End Art
Art is a favored speculative asset class, particularly for the well-heeled. The most expensive art tends to appreciate at a higher rate
than the more commonplace art. Quoted returns are often in the 5.3-7.5% range. You can buy the art directly at auction or buy
through a private art fund. It can be stored in freeports to minimize taxation as well. While some may derive some pleasure from
viewing and showing off their art, most high-end art is not on display in a museum or anybody's home. It's in a climate-controlled,
secured facility, probably in a freeport warehouse.
#5 Oil, Gas, and Other Commodities
I'm not talking about an oil and gas producing business or property. I'm talking about the black stuff itself. Southwest Airlines has a
great reason to buy a bunch of oil to hedge against their future costs. I'm not as convinced that you and I do, but there are a number
of ways to invest in these commodities such as the futures market.
Speculative Investment example
#6 Silver
Ahhh…Silver. Get worse returns than gold with more volatility. The one advantage it does have is that there are far more industrial
uses for the metal, but that doesn't seem to have made it easier to value or less volatile. I have no idea why someone would want
silver over gold as a long-term holding. The only argument I've ever seen to buy silver over gold involves a particularly high gold to
silver price ratio, suggesting that the relationship must revert to the mean in the future.
#7 Currencies
Lots of Bitcoin fanboys like to pretend cryptocurrencies are currencies, as if that provides them some additional legitimacy. They're
not, but that's not necessarily a bad thing. There are tons of scams associated with the Foreign Exchange (FOREX) markets, but if you
need to hedge against currency changes, putting some of your cash or other investments into a foreign currency can be a great way to
do it. If you own international stocks, you're already doing this to at least some extent. If you are working in the US but plan to retire
in Italy, Iran, or India, it wouldn't be a bad idea to keep some money in those currencies to hedge against a dollar decline.
The downside of currency investing is, primarily, the hassle. The volatility usually isn't terrible, although there is no guarantee that
even in the long run any given currency will keep up with the dollar.