The financial game is a wild space and when playing in that world it’s important to understand the difference between an investor and a speculator – both of which have drastically different views and long/short-term goals. This post touches more on that.
First and foremost, investors above all should make investment decisions based on the intrinsic value of the business/stock with a prime emphasis on the facts and what has been accomplished in the past. The central focus for the investor is on guarding against the future, with the facts from the past being used only as a rough index for the future.
Strong emphasis on free cash flow, book values, working capital, debt to equity and coverage ratios while identifying those businesses with a history of strong and stable dividends with low payout ratios as permanent holdings.
Speculators are not to be concerned with the intrinsic value of the business, and are instead fully price-focused with an emphasis on expectations of the future. Most often this includes temporary holdings with purchases made on margin seeking capital appreciation by hoping to predict the future.
While there is nothing bad in being a speculator, there is great danger in believing one is investing when in fact they are speculating. And our team helps high-net-worth individuals and global financial institutions navigate that process.
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