7. Duration of investment.—While the investor is content with a steady income and tries to avoid rein vestment, the speculator is incessantly changing the form of investment to meet the exigencies that con stantly arise. Whenever, in his own opinion, the speculator believes that prices will rise, he buys and buys quickly. The retention of his purchases hinges on the course of succeeding events. As a rule, buy ing is a temporary matter with him and his decision varies according as the possibility of gain is close at hand. When indications all point to the advisability of retaining what he bought, no other alternative pre sents itself ; the decision is made automatically.
When loss must be incurred, he immediately sets out to relieve himself of the burden, as quickly and shrewdly as is possible under the circumstances.
8. Bonds or stocks.—Investments are usually made in bonds, mortgages and preferred stocks whereas common stocks are the field of speculation. A bond is in reality a promissory note secured by the property of the concern itself. The stockholder tho he tech nically owns the property of the enterprise, has little voice in its management, which lies in the hands of the directors. Profits are only secured in the form of dividends when the board of directors votes to this effect. It may decide to accumulate profits, with out declaring dividends, and there is no force on earth to make them act otherwise.
So far the picture is a gloomy one for the stock holder but there is a reverse side to it. The interest on bonds ranges from four to six per cent, but in the case of stocks no limit is set. In time of prosperity, the income rises very high but in dull times reaches a low ebb. The possibility of enormous gain is con sidered a recompense for the risk. Since dividends of common stock are thus subject to fluctuation, the prices of the stock are liable to equal vacillation thus opening up a great field for speculative efforts. An announcement of large orders in connection with the expectation of handsome profits causes a flurry of ex citement among would-be purchasers; the article of security is eagerly sought, and, for a time, prices rise until the climax takes place. At this stage, par ticularly, coolheadedness and sound judgment are needed by the speculator.
9. Gambling defined.—All these distinctions serve to distinguish clearly between the two forms of busi ness relationship. But we have to contend with an other difficulty which finds its origin in popular con fusion of mind. Speculation is often attacked on the
ground that it is merely another form of gambling. How is it distinguished from gambling? The gambler acts blindly and assumes risks whether the exigencies of the situation require that course of action or not. The speculator, however, assumes those hazards which must fall to someone's lot, if not to his own. Every business teems with risk and chance, and the speculator is best fitted by his training to cope with them adequately. It is not a question of an artificial institution; speculation is an inherent aspect of commercial intercourse and must be taken into ac count willingly or not. Moreover, speculation pre supposes intellectual effort; gambling, only blind chance.
Both gambling and speculation, it must be admit ted from the very outset, hinge on uncertainties in the fundamental laws underlying human action. Both, it is true, have a common lucrative purpose. In both cases, also, the object nominally purchased is of ten not actually in the physical possession of the owner at any given time. Furthermore, in each instance, the method of buying is identical, i. e. marginal pay went. But there is all the difference in the world be tween gambling and speculation.
Gambling with cards entails a definite, concise loss on the one side and a corresponding gain on the other. Gambling on the stock and produce exchange is much the same. The gambler is reckless, assumes danger when there is no necessity for doing so, and employs little or no judgment and intelligence in the determin ation of where his money should be placed.
10. 3lethod of the speculator.—In contradistinc tion the speculator employs a method. The profit of the speculator does not always imply a counterbal ancing injury to the other party. What the normal speculator gains represents merely the difference be tween cost and selling price. He deals in "futures," for example, and buys up wheat crops from the small or large producers at a certain definite rate per bushel. The contract is a voluntary one and agreeable to both parties. The farmer in this case receives the pre vailing market rate for his goods. Prices later rise, and, if the speculator unloads, he makes a profit. He performs a distributive function. The speculator as sures the farmer the receipt of a definite sum and thus removes the element of risk from his shoulders. As recompense, the speculator gets the profit, if any ex ists, and a loss if the market goes against his expecta tions.