What’s the Difference Between Investing and Speculating? (Part 1)

May 5 / Cayden Chang

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Let me explain how share prices are formed. I mentioned this before, but it’s worth going through again.

When a company makes money, is that good news or bad news?

Obviously, good news!

Now, when good news comes out—like a strong earnings report—speculators and gamblers, who don’t really understand much, will rush in. They see everyone buying, so they also jump in and buy stocks.

When the majority of people start buying, what happens to the share price?

There’s only one reason why share prices go up: more people are buying than selling. That’s it. It’s not magic. It’s not mystery. It’s just demand and supply.

So when people rush in to buy, the share price goes up.

But remember: this doesn’t happen at the same time—it’s sequential.
Cause: The company makes money.
Effect: Share price goes up.

Now let’s look at the reverse. If a company is losing money, and the bad news is released in their financial report—what happens?

People panic. They don’t know what’s really going on, but they see others selling and they follow. "You sell? Okay, I sell too!"
So, when most people are selling, what happens to the share price?
It goes down.

Again, there's only one reason why the share price goes down: most people are selling. So whether the price goes up or down, it’s always because of the actions of the crowd.

So here’s the key question:
Which happens first—the company making or losing money, or the share price moving?

The answer is: the company’s performance comes first. That’s the cause. Share price movement is just the effect.

So if that’s the case, where should we spend most of our time?

We should focus on understanding the fundamentals of the company. That’s what makes you an investor.

On the other hand, there’s a group of people who spend all their time staring at share prices. Every single day. These are the speculators or traders. They constantly monitor charts and movements.

Let me share the key benefits of being an investor—and why you probably wanted to learn investing in the first place.

You didn’t learn investing so you can work longer hours, right?

You want to learn investing because, over time, you want your working hours to become shorter and shorter, not longer and longer. But how can that happen if you need to monitor share prices every day?

That defeats the purpose!

So here’s what being a true investor gives you:
  1. You don't have to monitor the share price daily.I know it's hard - some of you still peek! You think by watching it, you are more in control. But remember, the whole point is to buy and then let it work for you.
  2. You see it through like a business owner.
    You are not here to guess prices or be a fortune teller. You own a piece of a business, and you are letting it grow.
  3. You reduce transaction costs.
    As an investor, you buy and hold. Maybe you hold a stock for 1, 2, or even 10 years. That means fewer trades, fewer commissions. That's passive income.
You’re not here to make the broker rich with frequent trades.

You’re here to make yourself rich through smart investing.

In fact, Benjamin Graham once said:

“The speculator makes money for the broker. The investor makes money for himself.”

That's why speculators become broker ... while making the broker richer!! So please—copy the above and write it down somewhere.

Now, let’s talk about the other group: speculators and traders.

There’s nothing illegal or immoral about what they do. But some believe that if they stare at the share price long enough, it will go up!

You and I both know—it doesn’t work that way.

The only sustainable reason for share price to rise is if the company makes money.

That said, for every general rule, there are always exceptions.

Before I show you the exceptions, let’s look at some well-known people.

Take Jeff Bezos, for example. After his divorce, his ex-wife became one of the richest women in the world—because she had a stake in his company! The point is, even after a divorce, Jeff Bezos remained one of the richest people alive. The gap is huge.

Now compare that with Warren Buffett. Despite the age gap, and differences in personality or style, these billionaires have one thing in common.

In fact, all the richest people in the world—from #1 to #100—have one thing in common.

What is it?

They all own a business.

None of them became wealthy by trading stocks, speculating, or guessing share prices.

This is a fact.

You don’t have to judge what others do. They have the right to choose their path. But as for us—we’ll stick with what we know works.

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