Warren Buffett defined the difference between investing and speculating in this famous passage from his book, The smart investor:
The most realistic distinction between the investor and the speculator is found in their attitude toward stock market movements. The speculator’s main interest lies in anticipating and benefiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels, at which it would be prudent to buy, and high price levels, at which he should certainly refrain from buying and would probably be prudent to sell.
This statement can be applied to the new wave of investment, binary options. This is a loose example of how binary options work; the premise is to indicate whether a stock or commodity will go up or down in the next ten minutes. Although this is a rather pedestrian look at the inner workings of binary options, this is basically how you play the hand.
If you noticed the reference to poker or card game, this is what binary options sums up, yet another casino game.
A lot of speculation has been going on on the trading floor currently. Many investor newsletters offer their predictions for stocks, commodities, etc. have in their wallets.
When choosing to invest, you will need to have a proven earning strategy to see a return on investment. No matter how you look at investing, you will always be speculating or projecting on a number of factors.
Studying cycles is also a proven strategy to help increase ROI.
Everything in nature has a cycle. To better understand the cycle of things is to observe and take note of the changes.
The changes can be obvious or very subtle. By looking at changes in the cycle, we can project what is likely to happen next.
The real estate and commercial housing market also has a cycle, when prices rise dramatically in any given area, that same area has a hard bottom. Examples would be Stockton, CA and the Inland Empire.
Housing prices in those areas where going up almost every day by leaps and bounds. Then all of a sudden the market in those same areas fell just as hard.
The Inland Empire was a growth area in the late 1980s and then became a decline area shortly thereafter. Fast forward to the late 1990s, the same area was growing past its highest peak. So with all things it fell as sharply as it rose.
If you were to invest in the Inland Empire now, the initial strategy would be to hold the property knowing that it will appreciate as it did in earlier times, and then sell the property right at or just before the peak.
The stock market also has a pattern because all things in nature follow a cycle. This is one of those rare moments when everything really exists. But also keep in mind that within a loop there are also more loops that contribute to the larger loop.
In real estate, the job market fell in the early 1990s and companies cut spending to buy shares from investors. For our current housing market, the downward turn initiated by subprime loans and overextension of credit; similar to the late eighties early nineties.
So with all cycles, now is the low point in the market, the time to buy and hold. appreciation is waiting