~ John Bogle – Part III
Speculation vs. Investing
Investing is owning businesses for the long term and gaining value from the gain that the businesses accumulate intrinsically.
Speculation is the attempt to capitalize in the short term on the changing prices of individual stocks.
A stock is the security that allows us to participate in either of the two activities described above.
What is a long period of time? Let’s call it 25 years because most of us who are investing have in mind a period of time ranging from those just getting started in their 20’s and continuing on through age 100 plus (and beyond if you have in mind to leave an inheritance to your heirs). 100 plus is currently the fastest growing population demographic in our country.
The best possible return one can acheive in either the business of speculation or investing is an amount equal to the gain in intrinsic value of companies over time.
The net return that participants in either category will receive will be equal to the total return (value increase in the businesses owned) less the cost of losses from activity in the mean time – activity like active trading, missing trades, delayed trades, internal expense ratios, etc.
If the gain in our accounts will have to do with the value increase in the businesses we own, wouldn’t it be better to focus on owning businesses rather than on when to buy and sell them?
Invest, don’t speculate. Don’t let the news and the hype on Wall Street distract you. Ever stop to think why Warren Buffett moved the offices of Berkshire Hathaway to Omaha Nebraska? 2000 miles from Wall Street?