Speculation and Speculator

Speculation is investing in some asset with the hope of profiting from a price change in asset. Sometimes speculation is regarded as a form of risky and imprudent investing, and some would contrast speculation with investing. A speculator is one who speculates. Speculation is an action that is the result of speculare—in other words, to observe from a height; of considering the signs of the stars to take a specific action at the propitious moment with the best probability of success; and of scrutinizing something intently. Speculation is applied to the environment of investment markets, referring to those operations in which someone—the speculator—buys shares or commodities at a low price in the hope of selling them at a higher price in the future, generally the near future. Those who speculate on the stock market are thus investors who move in the short term. At times, the speculator is associated with the player or the manipulator. However, there are important differences between them that are worth explaining, because “playing the market” and “manipulating the market” are generally considered somewhat unethical activities. Although speculation does not enjoy a good image in the public mind, it merits stating that genuine speculation contributes to the common good. This is because it improves the operation of the markets, while the manipulator always takes an unfair advantage at the margin of ethics by altering the prices of shares and the player operates on the stock exchange like someone who risks money on games of chance, without reflection and without any wellfounded reasons to justify his bet. On the contrary, the person who speculates with good intentions, seeking a profit and assuming a risk, does so by implementing decision mechanisms that are quite different.

Speculation requires serious effort to gain a competitive advantage on other investors, anticipating possible future scenarios on which decisions must be taken today. Speculators with technical preparation and experience take detailed notice of the multiple short-term factors that explain the quotation price of a share. They study the direction of the economy, are alert to indicators, and rationally decide with knowledge about the cause on well-founded hypotheses.

The benefits of speculation are to reduce market fluctuations; to provide the market with liquidity; to increase the volume of transactions; and to efficiently place financial resources, through the agility with which speculators react—investing or disinvesting—to new information. In short, if speculation is carried out in good faith—that is, with professionalism and rigor, without any fraud or illicitness—we should consider it as a high exponent of economic intelligence.

However, there are some less desirable effects to speculation: If it becomes an end in itself and is immune to ethical considerations and the end objectives of economic life, it could contribute to increasing the distance between the financial and real economies. Furthermore, this distancing can create economic imbalance at a worldwide level, making the difference between rich countries and poor ones even greater.