What is the Difference Between Investing and Speculation — And Why Does It Matter? (Forum)
Ever since Joseph de la Vega wrote Confusion of Confusions in 1688, many of the world’s leading investment thinkers have struggled to articulate the difference between “investing” and “speculating.” Does a focus on “safety of principal and a satisfactory return” define investing, as Graham and Dodd contended in Security Analysis? Is speculation best understood as an effort to “forecast the psychology of the market,” as John Maynard Keynes argued in The General Theory? Or perhaps the distinction comes down to long-term ownership of assets versus short-term trading — or the use of leverage and a focus on price action?
The answer matters: As Legg Mason Investment Counsel’s Robert Hagstrom, CFA, pointed out in a recent blog post on the subject, a lack of clarity has created a new class of “investulators,” individuals (and institutions, too, for that matter) who “wander aimlessly back and forth between the worlds of investing and speculation,” often to their own detriment.
To help empower investors to make better decisions, a key aim of the Future of Finance project at CFA Institute, we’ve assembled a panel of leading investment practitioners to discuss the issue in our inaugural online forum, moderated by Jason Voss, CFA. Our distinguished panelists include former Ewing Marion Kauffman Foundation chief investment officer Harold Bradley; investment consultant and blogger Tom Brakke, CFA; Marret Private Wealth President Margaret Franklin, CFA, a former chair of the Board of Governors of CFA Institute; and Legg Mason Investment Counsel chief investment strategist Robert Hagstrom, CFA.
The discussion will run from 15–19 July 2013. If you’d like to share your perspective or pose a question for our panelists, scroll to the bottom of this post and leave us a comment. We’ll do our best to incorporate your thoughts into the discussion.
Harold S. Bradley (@HSBtheThird)
Harold S. Bradley recently retired after more than five years as chief investment officer for the Ewing Marion Kauffman Foundation, where he was responsible for investing the $1.8 billion globally diversified, multi–asset class portfolio. While at Kauffman, Bradley and his colleagues published three noteworthy papers. He coauthored “Choking the Recovery” (2010) with Robert Litan. The paper discussed modern trading and market making systems, high frequency trading, likely causes of the Flash Crash, and possible systemic risk issues raised by the trading and settlement of ETFs. A subsequent paper called “Canaries in the Coal Mine” (2011) examined the rise in settlement “fails” for ETFs and the possible risks to investors in turbulent markets. Bradley and colleagues published a paper called “We Have Met the Enemy . . . and He Is Us” (2012) that analyzed available data on the long-term performance of venture capital funds and raised questions about current institutional investment practices. Bradley worked for almost 20 years as an equity trader, portfolio manager, and group CIO for American Century Mutual Funds.
Tom Brakke, CFA (@researchpuzzler)
Tom Brakke began his investment career with IDS Financial Services (now Ameriprise), and during his fifteen years there was an analyst, portfolio manager, director of research, creator of new investment products and systems, and founder of the hedge fund unit. Subsequent to that, he was the professional advisor to the Carlson Funds Enterprise of the MBA program of the University of Minnesota and served as a consultant for the independent research portion of the Global Research Analyst Settlement. Brakke provides consulting services to investment organizations and institutional investors, specializing in decision-making processes and the effective communication of investment ideas. He also writes extensively about the industry, on his own websites and for other publications, and is one of “The Experts” for the Wall Street Journal forum on wealth management.
Margaret Franklin, CFA (@MargFranklin)
Margaret Franklin is the president of Marret Private Wealth Inc., a division of Marret Asset Management. Franklin has more than 20 years of institutional and private client investment management experience. She has worked at Barclays Global Investors, State Street Global Advisors, and Mercers in senior positions. In 2002, she moved from the institutional side of the business to work with private clients. Franklin is the former chairman of the board of governors of the global CFA Institute, is a past president of the Toronto CFA Society, and is a CFA charterholder. She has a BA in economics from McMaster University.
Robert Hagstrom, CFA (@RobertGHagstrom)
Robert Hagstrom, CFA is chief investment strategist at Legg Mason Investment Counsel and the author of the New York Times best-selling The Warren Buffett Way. He is also the author of The Warren Buffet Portfolio: Mastering the Power of the Focus Investment Strategy; The Essential Warren Buffett: Timeless Principles for the New Economy; NASCAR Way: The Business That Drives the Sport, and The Detective and the Investor: Uncovering Investment Techniques from the Legendary Sleuths. Robert’s new book is titled Investing: The Last Liberal Art (second edition) published by Columbia Business School.
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.