• Are you acting upon a guess as to how events in the short-term or long-term future will turn out?
• Are you putting money in because you think the market has "bottomed out?"
• Are you taking money out because you think the market will fall soon?
• Are you acting on some article, book, blog post, or overheard conversation about the future of some
• Has someone sold you on an "investment" that promises quick and easy returns that seem too good to
be true? If it were such a money maker, why are they selling it to you?
• Are you investing based upon a formula somebody gave you?
• Are you investing based upon how a stock chart looks?
Then you're speculating.
Speculation is not a long-term winner for most people. Yes, some people get lucky and end up winning big with speculation. However, those same people typically end up losing those big winnings eventually because they had to take big risks to get the big win and they continue to take those big risks to try to win more. In the end speculation is just like gambling.
I'm not saying that speculation is wrong. Speculating is OK if you recognize thats what you're doing. However, many people speculate and call it investing. Make sure that when you think you're investing you're not actually speculating.
Again, its OK to speculate. Just make sure that you know you're speculating. In fact, some amount of speculation may be necessary for you to get it out of your system. Speculate with a small amount of what you plan on investing or, better yet, don't use real money. I did a little speculating when I first started investing. The engineer in me said, "this is just another system I can break down and figure out. I'll make millions and retire to a tropical island in no time!" I learned my lesson and have now gone back to the investment basics. I didn't lose all my speculation money. I just did worse than the no effort solution and lost money as a result.
A really great example of people speculating when they thought they were investing was around the summer of 2008 when oil prices went higher and higher. To many people they seemed like they would go to the moon! I saw ads for "investing in oil." Those ads were fraudulent because had you followed their advice you would have been speculating. Generally, if the X in "investing in X" is very specific, then its speculation. We all know how "investing" in oil turned out for those people. A good example from today would be "investing in gold."
Edited article from Beginner Investing made easy