Understanding Speculative Investing in the Stock Market

Speculation is a  stock exchange investing strategy. The strategy involves purchasing stocks at a time when they are not popular or when the stock or bond being purchased does is not immediately paying dividends. The investor believes, or speculates, that the investment will grow in the future.

Investment vs. Speculation

Investment, unlike speculation, has a reasonable promise of return of at least the principal sum. Most investments also carry a reasonable promise of some dividend, usually because the stock is already paying a dividend. While all stock or bond purchases, including investments, may seem "speculative," the term speculation only applies to those decisions that carry significant risk after thorough analysis.

Speculative purchases are not currently paying dividends and, in all likelihood, will not in the future. It is also possible the purchaser will lose the principal amount invested. People make these types of purchases with the hope that their analyses or instincts will be correct and the stock will trade at a much higher value in the future.