Duncan On Investment And Speculation In Stocks And Shares explain the technicalities of the Stock Exchange, and to clear up such difficulties as have hitherto lain in the paths of inexperienced investors.

Introduction (From Author):

INVESTMENT and speculation are twin sisters, and so nearly alike that it is almost impossible to discriminate between them. There are investors, that is to say, people with money laid out to produce income, who would be horrified at the idea of being classed with speculators. Yet what are speculators if they too are not people with money laid out to produce income? Where is the difference? An ” investment” is supposed to mean absolute safety, but where is absolute safety to be found?

And the so-called speculator? Does not he consider that his ventures in the aggregate are absolutely safe to bring him a fair return for the capital embarked? All investments of money are more or less speculations as surely as that all speculations are investments of money. Both methods, call them what we will, have the same object in view, to be achieved by similar means namely, to put out money to the best advantage.

The very people who are most shocked at speculation and gambling are often themselves the most inconsistent gamblers. They invest, and perforce take a chance of losing. But what they do not see is that in their forms of investment the chances are against them ; their chance of loss greatly exceeds their chance of gain. If the unforeseen should happen they might make heavy losses, but no combination ·of circumstances could make them heavy winners. On the other hand they would contend that speculation implies large· chimerical gains with possible loss of the whole capital. This also is an unfair explanation. As a matter of fact, investment and speculation are words with but slightly different meanings.

INVESTMENT, strictly speaking, is the placing of capital in a security which does not vary in value, and which offers a certainty that interest upon the same will be regularly paid.
SPECULATION is the placing of capital in a security not selected so much with a certainty of regular interest as with the idea of the value of such security increasing.

And a good speculation is one in which the chance of decrease in value is smaller than the chance of increase. The investor receives his interest ; the speculator his profit. Again a distinction without much difference. We may take it therefore that there are three ways of laying out money to produce income; by: Investment-Speculative Investment-Speculation. To appreciate the difference between these three is a most important lesson to be learnt. To know how to adapt each to one’s personal circumstances, to become master of the art of employing money in investment, in speculative investment, or in speculation according to the probabilities of the moment will follow in due course if proper attention be paid to the subject.

And unless a capitalist is prepared to take the very slight trouble necessary to teach himself to invest, he had better be satisfied with the tiny return which high class investment offers him. If, on the other hand, he is sensible enough to want the most he can get for his money, then he must calculate what risks he runs and employ his capital where the contingencies are in his favour. When he knows them he can provide for them and fortify himself against them. If he thinks he holds the one class of security when really he has the other he is in danger that he may not realise until it is too late to save himself and his money. So the prime point is to know whether his property consists of investments, of speculative investments, or of speculations.