Nowadays, it seems that anyone who owns anything fancies themselves to be an investor. However, does buying a fractional unit of bitcoin in an online trading account qualify someone as an investor?

Are fanciful dreams of striking it rich by running with the social media herd the foundation of fundamental investing? Maybe there is more to it than that. Let’s take a look.

WHAT IS INVESTING?

According to Investopedia, “Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit.”

You can invest by starting a business, buying stocks or real estate, etc. These things are termed investment(s), meaning something worth buying “because it may be profitable or useful in the future”.

If someone buys Bitcoin, or any other crytocurrency, “because it may be profitable… in the future”, then they are an investor by definition.

What if someone thinks the stock market is going down and wants to bet on that? Short selling (selling borrowed stock in the hope of buying it back at a cheaper price) might not be some people’s idea of investing, but it fits the definition of investing.

Traditionally, though, short sellers are more typically viewed as speculators.

ROLE OF SPECULATORS IN THE MARKETS

Traditional investors, the general public, and the media love to badmouth speculators. As far as investors and the general public are concerned, that is understandable but flawed thinking. The media and politicians, see “speculators” as convenient scapegoats in their demands for more intervention and regulation.

All of that is unfortunate, because speculators have a fundamental role in the financial markets. For every transaction in the markets there is one buyer and one seller. When you want to buy 100 shares of Tesla stock, someone has to be willing to sell an equivalent number of shares to you at an agreed upon price.

You may think that buying Tesla stock today at $650 is cheap and that your expectations for a higher price in the future qualifies your purchase as an investment. But unless someone disagrees with you and is willing to sell shares to you at that price, you might end up paying much more to get your desired shares.

Let’s say that someone else thinks that Tesla stock today is overpriced and doesn’t own any Tesla stock. He, or she, sells Tesla stock short expecting the price to go down. We might reasonably consider that ‘short seller’ to be a speculator.

On the other hand, someone who thinks that Tesla stock at $650 is overpriced might very well consider your purchase at $650 to be foolish, a crazy speculation, even gambling.

ARE YOU A SPECULATOR OR A GAMBLER?

“When I was younger, my investments were mostly speculative. They were gambles. I wanted to earn huge returns — and I wanted them today.” (source)

The desire for big gains in a short time can lead to investment behavior that is reckless.

For example, there are valid reasons for the use of options in an investment portfolio, and there are firms that specialize in options trading services, but it is very important to understand all of the risks involved.

Speculation and gambling were certainly characteristic of some players in the GameStop stock incident. However, it seems appropriate that the principal characters in the Reddit crowd, and their actions re: GameStop stock, earn them a descriptive term different from those above.

The term is instigators. I would add to that term the phrase “with malicious intent”. Their statements of purpose in the matter indicate that.

Investors, depending on their specific actions and intentions, might also be speculators. And speculators, on occasion, can be described as investors – or gamblers.

Which one are you?

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah. His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2021 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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