Realistic versus speculative investment
Warren Buffett defined the difference between investing and speculation in this famous passage from his book, The smart investor:
The most realistic distinction between the investor and the speculator is found in their attitude towards movements in the stock market. The main interest of the speculator lies in anticipating and benefiting from market fluctuations. The main interest of the investor is to acquire and maintain suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels, at which it would be prudent to buy, and high price levels, at which he should certainly refrain from buying and it would probably be prudent to sell.
This statement can be applied to the new wave of investment, binary options. This is an imprecise example of how binary options work; the premise is to indicate whether a stock or commodity will go up or down in the next ten minutes. Although this is a pretty pedestrian look at the inner workings of binary options, this is basically how you play the hand.
If you chose poker or the card game reference, this is what binary options add up to, yet another casino game.
Currently, there has been a lot of speculation going on on the trading floor. Many investor newsletters offer their predictions on stocks, commodities, etc. have in their wallets.
When choosing to invest, you will have to have a proven earnings strategy to see a return on investment. No matter how you look at investing, you will always be speculating or projecting on a number of factors.
Studying cycles is also a proven strategy to help increase your return on investment.
Everything in nature has a cycle. To better understand the cycle of things is to observe and take note of the changes.
The changes can be obvious or very subtle. By noticing the changes in the cycle, we can project what is likely to happen next.
The housing market and commercial housing also have a cycle, when prices rise dramatically in any given area, that same area has a hard bottom. Some examples would be Stockton, CA, and the Inland Empire.
Housing prices in those areas rose by leaps and bounds almost every day. Then all of a sudden the market in those same areas fell just as hard.
The Inland Empire was a growth area in the late 1980s and then became an area in decline shortly thereafter. Fast forward to the late nineties, the same area was growing past its highest peak. Then with all things they fell as sharply as they rose.
If you were to invest in the Inland Empire now, the initial strategy would be to maintain the property knowing that it will appreciate as in earlier times, and then sell the property just at or just before the peak.
The stock market also has a pattern because all things in nature cycle. This is one of those rare moments where everything really exists. But also keep in mind that within a cycle there are also more cycles that contribute to the larger cycle.
In real estate, the job market fell in the early 1990s and companies cut back to buy shares from their investors. For our current housing market, the downturn started from subprime loans and over-extension of credit; similar to the late eighties early nineties.
So with all the cycles, now is the market low, the time to buy and hold. Appreciation is waiting