Speculation VS Investing

The line between a speculative and investment enterprise is very clear. Speculative enterprise has a chance that the speculator will substantially diminish his/her capital while an investment enterprise has a margin of safety for your capital.

Example:

Speculative enterprise

You bought company A with a book value of P1 for P20 with the hope that the company will hit 300 million barrels of oil.

What if they hit 300 million barrels of oil? You will win. Big time. Probably more than 10 fold of your investment.

What if they do not? You will lose. Big time. Probably it would render your investments near to useless.

 

Investment enterprise

If you bought company A with a book value of P10 for P2 and they have a chance that the company will hit 300 million barrels of oil.

What if they hit 300 million barrels of oil? You will win. Big time. Probably more than 10 fold of your investment.

What if they do not? It’s alright. You have substantial asset protection. The stock price may fluctuate but value is still intact.

Above are simplified example and this concept will continually be validated as we go on.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s