Invest, don't Speculate

Its Sunday about to turn to Monday (11:30 pm). I’m still at work. I arrived at 12 noon, to prepare and get organized for the coming week. I like to be ahead. I’m finished working on WhiteyBoard, and now just reading. You can probably guess what I’m reading about; Warren Buffet. Duh. I consider Mr B my mentor, even though, I’ve never met him, only in a dream. haha.

Back to my last post, since everyone is shedding risk, so more and more opportunities will show up in the near future. Thus, you need to pick companies based on fundamental analysis. What matters is how the company does, and its not even that. its an analysis of the fundamental earning power of the asset and looking too that earning power to justify the price you pay.

A big lesson warren has taught me, is to invest, and not speculate. There’s a real distinction between the two. Although, there both subjective, with an investment attitude, you’re looking at the ASSET itself to produce the return.

For example, i buy a farm and expect it produce $80 an acre for me in terms of its revenue from its corn and soyabeans and it costs me $600.

I look to the return from the farm itself (the value from the sum of all the future cash flows discounted at the appropriate discount rate). I’m not looking at the price of the farm, everyday, every week or everyyear (why would i, if i’m never gnna sell it?).

Speculation on the other hand, is when I buy a stock and hope it goes up next week. To me, thats purely speculation.

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