Investment vs Speculation
By Saghir Aslam
Irvine , CA
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Investments are long term. Speculations are short term. Investments tend to be more conservative – speculations more aggressive. Speculations are not short term investments; in fact, one could argue that " short term investment" is a contradiction in terms. Entirely different factors effect speculations than have bearing on investments. It is crucial for investors to distinguish between investing and speculation.
Investments have time on their side. Over the long term, an investment is less subject to the seemingly random day to day movements of the markets and more responsive to identifiable trends. Whether it is an improving earnings pattern, the benefit of a technological breakthrough or the emergence of a strong management team, factors which influence the long term performance of a company are often recognizable. Give time, such trends will strengthen a company's stock.
One the other hand, the same stock, with its positive long term outlook, may run into tough going in the short term. A general market decline, had economic news, unfavorable industry activity or program trading could leave a company at a standstill, for awhile. However, as long as the positive trends remain in place, the investment opportunity remains in place. Though camouflaged by negative current developments, a good company will ride out the storm and emerge as the strong performer it originally appeared to be.
There are many examples that I could have shared with you but I have chosen giant Boeing going back to 1990. I choose this time and company for Pacific or reason. Though even this year there were several companies that would have fit the bill.
Consider Boeing. This top-notch, blue chip company has been rewarding investors for the past decade. Back in July, 1990, Boeing's stock topped out around $62 per share, after a three year advance which had lifted the stock from $15 in November, 1987. From there, it declined sharply and then wandered around, eventually hitting a low of $33 at the end of 1992.
During this time, the company's earnings slowed notably due to a cyclical downturn in their business. However, disciplined investors recognized that Boeing's commanding position in the airplane manufacturing industry would ultimately return the company to rapid earnings growth. Sure enough, orders started coming in late in 1994. The stock had moved ahead sharply from $45 at year end 1994 and then to $105.
(To be continued)
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, or does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr. Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr. Aslam does not have anything for sale.)
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