Speculation
Etymology
Latin speculatus, past participle of speculari to spy out, examine, from specula lookout post, from specere to look, look at
- Date: 1599
- intransitive verb
- 1 a : to meditate on or ponder a subject : reflect
- b : to review something idly or casually and often inconclusively
82 : to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations
- transitive verb
- 1 : to take to be true on the basis of insufficient evidence : theorize
- 2 : to be curious or doubtful about : wonder
Description
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum. Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.
