Probability of Return in Investment, Speculation and Gambling

The main difference between investment, speculation and gambling is the "ex ante probability of obtaining a reasonable return which is known at the time when each of these three activities is carried out".

Ex-Ante Probability of Return

Investment -  Good
Speculation - Uncertain
Gambling - Negative

What this means is that we are fairly confident that we can make a reasonable amount of money by making a true investment; we are uncertain as to whether we can make money from speculation but we are sure that we will lose money by gambling. 

The sidetracking of investors into speculation and even gambling is the worst enemy of good investment.

We must be ultraconservative and maximise the odds in our favour.  If a stock analyst warns you that there is only a 10 percent chance that prices would rise above this level, you should avoid buying shares at that level.  On the other hand, if he says that there is a 90 percent chance that share prices would not fall further, we should certainly grasp the opportunity and buy.