E Investors, Speculators, Gamblers, Instigators

Nowadays, it seems that anyone who owns anything fancies themselves to be an investor. However, does buying a fractional unit of bitcoin in an online trading account qualify someone as an investor?

Are fanciful dreams of striking it rich by running with the social media herd the foundation of fundamental investing? Maybe there is more to it than that. Let's take a look. 

What Is Investing?

According to Investopedia, "Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit."  

You can invest by starting a business, buying stocks or real estate, etc. These things are termed investment(s), meaning something worth buying "because it may be profitable or useful in the future". 

If someone buys Bitcoin, or any other cryptocurrency, "because it may be profitable... in the future", then they are an investor by definition.

What if someone thinks the stock market is going down and wants to bet on that?  Short selling (selling borrowed stock in the hope of buying it back at a cheaper price) might not be some people's idea of investing, but it fits the definition of investing.

Traditionally, though, short sellers are more typically viewed as speculators. 

Photo by M. B. M. on Unsplash

Role Of Speculators In The Markets

Traditional investors, the general public, and the media love to badmouth speculators. As far as investors and the general public are concerned, that is understandable but flawed thinking. The media and politicians, see "speculators" as convenient scapegoats in their demands for more intervention and regulation.

All of that is unfortunate because speculators have a fundamental role in the financial markets. For every transaction in the markets, there is one buyer and one seller. When you want to buy 100 shares of Tesla stock, someone has to be willing to sell an equivalent number of shares to you at an agreed-upon price.

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William K. 3 weeks ago Member's comment

Thanks for a well-thought article with some great insights.