Regarding investment and speculation, you will find that this is an incompatible issue in major financial forums. All parties are full of affirmation of their own understanding, and few people maintain more pertinent opinions. In fact, in everyone's opinion, investment is based on central regression, and speculation is based on trend following. Speaking of this, everyone think about what is the central regression? What is the premise of following the trend? In my opinion, the central regression is to return to its proper value. Any overvaluation or underestimation will make it constantly correct and finally return to its own value. Speculation is trend-following, short-term trends, medium-term trends or long-term trends, using this as a benchmark to earn short-term fluctuations, rather than long-term holdings.
Speaking of this, everyone may wish to think about a question: Is the transaction an investment or a speculation? Do you think Mr. Buffett is an investor or a speculator? First of all, I will answer the first question based on my understanding. I think trading is a generalization of investment and speculation. In my opinion, Mr. Buffett is both an investor and a speculator. Didn’t Mr. Buffett buy many of his operations after others irrationally sold them? From this perspective, he is a speculator. When he recognizes the long-term value brought by the buying price and then holds it for a long time, he is a value investor.
Next, let's think about whether investment is a zero-sum game? Is it only speculation that is a zero-sum game? Here I am very confident to tell you that investment is also a zero-sum game from a certain point of view, but there are still subtle differences between the two zero-sum games of investment and speculation: investment is the distribution of present and future benefits, and it belongs to the discounted game. The distribution of interests, while speculation belongs to the distribution of current interests. In addition, they also have one thing in common: they all take advantage of the irrationality of their opponents. Mr. Buffett is mentioned above. He will definitely not buy stocks because his company is valuable, regardless of the price. He will also wait for the right price. If you buy again, someone will definitely sell when the price slowly returns to the center, and he will definitely buy at this time. Doesn’t this kind of investment contain speculative elements from another perspective?
It is precisely because of irrationality that asset prices are undervalued or seriously undervalued, overvalued or seriously overvalued. Everyone has heard of valuation, what is valuation? Valuation One is based on performance streams and benchmark interest rates. The second is the risk premium. The higher the premium, the higher the valuation will be. Therefore, the risk premium is most closely related to irrationality. Speculation comes from volatility, and investment comes from the value center. It is precisely because of the risk premium that many irrational behaviors are generated, so there are opportunities that are overvalued or undervalued. In the case of speculation, it also creates investment opportunities for us, so it is not like killing two birds with one stone.
The last thing I want to say is that it doesn’t matter whether everyone thinks they can be integrated or not. The important thing is that the transaction should be based on investment. When there are no financial products or assets returning to the center you think, you can firmly grasp speculation. Opportunity, when it slowly returns to its own value, you can boldly buy and then invest. Don't think that you can kill two birds with one stone. Whether you can kill two birds with one stone depends on the way you train your swordsmanship. I will stop here for a while today. If you are interested, please continue to pay attention to my article. Thank you for watching.
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