I buy shares and have held a big portion of my portfolio for more than 30 years now. Does it make me a trader, speculator or investor? Well in my younger age I would have gone to a Benjamin Graham’s book and looked for the definition of a trader vs. speculator. Today at this stage of my life, I do not feel the need to put people in buckets.

I invest in equities to get a return. Once when I bought GMR Infra for Rs. 71, I got information that it should not be touched and I sold it for 69 within a day or two. Was that speculation? No. When I bought it I bought it as an investment, but quickly changed my mind. I do not invest in real estate at all. However if a person bought RE in a location without infra and holds it for 20 years waiting for the infra to improve and then sell, is it speculation or investing? Remember every book tells you that an investment should put cash in your hand. The shares do put dividends, but the land puts no cash flow. However if the land value doubles or goes up 5 times in 20 years, it is putting cash in your hand at the end of 20 years, so is it an investment? Every asset is an investment in some people’s hands and a speculation in others’. So it isn’t what you buy, but rather why you buy, that determines whether you are investing or speculating. It is also possible that you change your mind – but you need to be clear about mind change too!

I buy shares and hold them for long periods but during the interim period I do trade in the same shares. So if I have 30,000 shares of Company X, I may trade 2000 shares about 3/4 times in a year – sometimes more. This I could be a day trader, or do a BTST (by today sell tomorrow), sell at a high price hoping to buy it back at a lower price, buy some more and sell it off when it reaches my short term target – so what am I? Long term investor, growth investor, value investor, …..seriously I do not know. So at the end of a bull run you buy THE INDEX hoping to get a 18% return because your adviser told you, you are speculating. However if you do a SIP in an index to get real returns over a 10, 20, 40 year period you are investing – same asset, same person, different answer!

In fact Graham says you should keep your trading portfolio and investing portfolio separate. I have not been able to. And I do not have any regrets. However some of my transactions – like say an Assam Company – the minute I buy I know it is a speculative trade. Or a South Indian bank – I know I am just speculating. So if my trading call goes wrong, I do not convert that into a ‘long term investment’. I am quick to take losses and slow in taking profits.

So if I were to VC fund a start up and get no dividends for 5 years am I speculating or investing? where are my returns? Where are the profits in Amazon, Uber, Ola, of Flipkart? So is it investing or speculating? Gold is ALWAYS speculation because there is no dividend?

Also there is too much of an ego involved – the speculator is thought to be a bad guy, and the investor a good guy (oops, why?). So George Soros is not as revered as Warren Buffett. However George Soros is more open, WB is opaque under the insurance garb. So who is better? Many friends would call themselves ‘position traders’ instead of speculators. Or ‘active investors’ trying to improve yields.

If you buy because everybody is buying, you are speculating. If you buy for keeping for a long term and in a year you get 4x of expected returns, so you reallocate, you are investing. However, if you believe that ‘Stocks are for the long run’ and long run is in terms of decades and wealth is generated over generations, you are investing.

Making money is more important than labels. If you know that, you are a wise investor.

 

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