Investing vs speculating: Where do meme stocks fall?
Investing vs speculating: If you had no idea why you invested in crypto, electric vehicles or meme stocks, you’re likely a speculator.
Figure out: Are you an investor or speculator? Understanding the difference could set you up for long-term financial success. According to Jason Zweig via WSJ:
- Speculating is purchasing an asset in the hopes that someone else will buy it for more than you did.
- Investing is relying on data/facts (i.e. earnings, growth and other factors) to make informed buying decisions.
What’s the difference? Speculating involves making higher-risk trades with less information. i.e. buying into meme stocks, like GameStop, for the hype.
- If you bought Gamestop based on a hot online forum tip without any research, you’d be a speculator.
- But, if you took the time to understand its financials and business, you could be a GameStop investor.
Why does this matter? Media and trading platforms have used investors and speculators synonymously as a market tactic to get you to trade more.
- Speculation can lead investors to make more trades, make bad decisions and take on more risk than they can afford.
- Winning big from a speculative bet is like catching lightning in a bottle — hard to repeat without getting burned.
It’s easy to fall victim to speculating and if you must, it’s best to limit those trades to a small portion of your portfolio.