ARE YOU AN INVESTOR OR A SPECULATOR?
July 11th 2011 00:00
As newbie in the field of investing, I've often wondered about the nebulous distinction that separates the real investors from speculators in the stock market.
This is not to say, of course, that I have not met or heard of anybody who would argue that there is a sea of difference between the two or that they are actually oceans apart and could not be mistaken from one another.
Both investors and speculators are quite capable of making their bundles in the market, but their risk taking activities are varied and sometimes they consider each other’s way of making money with disdain.
A newbie's mind like mine however has to be initiated, and an example wouldn't hurt so here is an attempt to show one example:
There is currently a big debate here in the Philippines on whether PLDT's take-over of Digitel, the smallest of the three major telcos in the country, would be monopolistic when an earlier attempt of its rival Globe was never considered as such.
PLDT is the biggest telco in this country and, though with a rather wide margin, Globe is the second biggest. You can form your opinion regarding this debate but that is not exactly what this post is all about.
This post is about the way two stock market players have reacted to that story. All three companies are listed in the local bourse and market player "A" thought this would be the best time to buy Digetel shares since it is being taken over by PLDT which is the darling of many investors who can afford its price.
PLT is trading at the moment at (PHP) Two Thousand plus (2000 ) per share while Digetel is at around (PHP) One Peso and Fifty cents (1.50) player "A" thought that Digetel could easily go to (PHP) Three Pesos per share because of the take over which is practically a done deal since both companies (PLDT and Digetel) already made the announcements and the delay is only caused by the complaint of Globe against the deal on the argument that it would give PLDT a monopoly of the telco market.
A congressional hearing is afoot due to that complaint but Player A thinks that nothing will come off it and the deal will eventually be consummated thereby pushing the stock price upwards to at least double its present value. He is therefore raring to buy the stock now!
Market player "B" on the other hand is taking a wait and see attitude. He has been watching Digetel for quite some time now. It piqued his interest not because of these latest developments but because despite its size and its late entry in the telco market, it disrupted the prevailing norms in that industry and forced the leading companies to play its game.
Digitel targeted the low end segment of the market and offered rates and plans that were so enticing that even the loyalists of the two big service providers ended up owning Digitel as their second phones.
When the two big service provider began mimicking the offers, he deicided it was time to buy Digetel stocks. He bought some of its stocks long before the gossip or the official story came out that PLDT is buying Digetel's controlling shares. But he bought with caution.
He bought its shares even as the prices fluctuated and his accumulation process is such that he is now even with the market despite the recent downturns. He is, however, not thinking of rushing into his computer terminal (he trades online) to buy more shares simply because of PLDT’s move to buy Digetel’s majority shares.
Now, are you like Market Player A or B? Are you a speculator or an investor?
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Comment by True Brit
PLDT are the only international traded share on the PSE and as a consequence have a massive weighting on the index, hence it's not surprising to me that it's an expensive stock.
As for they and Digitel being a monopoly in these days of Skype and mobile, is as almost irrelevant as Digitel have become, with their orientation towards fixed line telephony. Fixed line is dead and therefore so should be the monopoly issue!
As for investors and speculators, Here we are 3 years on from the great fall and problem's still abound.
1. Italy now added to the Euro sovereigns in intensive care, this time a country with an economy as big as Ireland Portugal and Greece put together.
2. US monthly employment figure of 18K following last months 48K when it is widely accepted that at this time of the cycle the figure should be close to 200K month after month.
3. Chinese inflation at over 6% despite months of attempts to rein it in.
4. The end of US QE2 stimulus with little left for the markets to be comfortable about, in terms of bullets from Bernanke .
These are highly volatile times. Unicredito an Italian bank fell 15% on Friday and US futures today are well down too, unsurprisingly yet US earnings season starts today too which is usually good for stocks.
Who would know whether stocks in a months time will be 10% higher or lower, and yet many investors use these investments for income. and so can't relax knowing that everything should be alright in 3 years time as they need money much earlier.
So if you need money in the short term, be a speculator and be short, but in the long term be an investor and stay long.