"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
This is what he wrote on speculation.
- Some speculation is necessary and unavoidable, for in many common stock situations, there are substantial possibilities for both profit and loss, and the risks therein must be assumed by someone.
- There is intelligent speculation as there is intelligent investing.
- There are also many ways in which speculation may be unintelligent:
- speculating when you think you are investing;
- speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and
- risking more money in speculation than you can afford to lose.
- Every nonprofessional who operates on margin (investing with money borrowed from your broker with your shares as collateral) should recognize that he is ipso facto speculating.
- And everyone who buys a so-called "hot" stock is either speculating or gambling.
- Never add more money to this account just because the market has gone up and profits are rolling. (That's the time to think of taking money out of your speculative fund.)
- Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.