Seth Klarman has written:
“The line I draw in the sand is that if an asset has cash flow or the likelihood of cash flow in the
near term and is not purely dependent on what a future buyer might pay, then it’s an
investment. If an asset’s value is totally dependent on the amount a future buyer might pay,
then its purchase is speculation.”
Based on this, a lot of investors are actually speculators - they may do a fundamental analysis and
say that a 20 PE company will move to a 25 PE size and then I will sell.
And the kicker via Buffett:
"Nothing sedates rationality like large doses of effortless money."
But Buffett's take on speculation is better:
The value of Tata Steel is x and it's available at a price of y, x is much greater than y, hence I will invest (subject to a zillion minus 1 conditions)
The price of gold is x and its value is unknowable - but I will buy because its price is going to go up because of a global currency debasement race - that's speculation
The value of Nestle India is x and it's available at a price of y, x is lesser than y but I believe that y will increase, hence I will buy! - that's speculation