Speculation (finance)

“ Organized buyers are the only offset to organized sellers.
Moreover, rising prices due to high expenses of production, or to combinations of sellers, present a paradise for speculation. A movement upward based on facts can be easily converted into a further rise based only on speculative manipulation. A rise of prices which brings large profits to a combination, thus directly affects earnings and gives especial opportunity to speculation in the securities of industrials. Hence, the field of speculation spreads from commodities to securities. ”

“ Now that we have reached a point in our discussion that brings us face to face with the so-called “evils” of speculation on the Stock Exchange, let us pause and consider the difference between speculation, which is held by many to be abhorrent, and investment, which is generally thought right and proper. The first thing we encounter is the shadowy and indistinct boundary line that separates the one from the other. ”

“ It will be proper, however, in this connection to define exactly the limits of speculation, and to point out more specifically how the Value Principle creates it, and how the Cost Principle extinguishes it.
By speculation is meant, in the ordinary language of [Pg 72] trade, risky and unusual enterprises entered upon for the sake of more than ordinary profits, and in that sense there is attached to it, among merchants, a slight shade of imputation of dishonesty or disreputable conduct. ”

“ Intention is shifting and uncertain. There is chance in every industrial, commercial, and agricultural operation. But for the point at hand, the test is simple: do more exchanges take place than are necessary, under the existing division of labor, to advance the materials of industry through the stages of production, and get things finally to the consumer? If so, the excess of exchanges is speculative. Trading between men in the same stage of production is speculation. ”

“ Speculators never set sufficient value upon the importance of avoiding a loss: they think only of the profits. As it is with our money affairs when we say, Look after the pence, the pounds will take care of themselves; so it is with speculators, look after the losses, the profits will take care of themselves. “Never refuse a profit,” is a golden motto for the speculator, which unhappily few of them in their greediness have the courage to adopt. ”

“ The financial crises of the present day are short-lived and confined to commercial centres, but three centuries ago they ruined whole peoples. And what singular speculations they were! Of all things in the world in which to make a corner, to excite a speculation, to be puffed by brokers, it would seem as if flowers would be the last. ”

“ Men of Wall Street, it is impossible to prevent the repetition of those acts by which in five years I have accumulated a billion dollars, impossible so long as a short sale or a repurchase and resale, is allowed. When short sales, and repurchases and resales, are made impossible, stock speculation will be dead. ”

“ The wisdom of man, in my humble opinion, cannot at this time devise a plan, by which the credit of paper money would be long supported; consequently, depreciation keeps pace with the quantity of the emission, and articles for which it is exchanged rise in a greater ratio than the sinking value of the money. Wherein then is the farmer, the planter, the artisan benefited? An evil equally great is the door it immediately opens for speculation, by which the least designing, and perhaps most valuable part of the community are preyed upon by the more knowing and crafty speculators. ”

“ A speculator who contracts to bring out a new loan, unless the security he has to offer is of the highest class, runs considerable risk of losing his money, as he has, as a rule, to pay something down to the borrower as a guarantee of good faith, and to allow him also to taste the ready cash, as some immediate consideration for entering upon business, which, if successful, is of all business the most remunerative. ”

“ The fact of speculation having come to be practised by established companies, where before it was a kind of business that it was considered necessary to pursue as secretly as possible, proves how strong is the tendency of the age in which we live to make royal roads to wealth. ”

“ When A and B find their £1000 bill about to fall due, and the expected proceeds of their speculation not forthcoming—when they find, as they often do, either that the investment has resulted in a loss instead of a gain; or that the time for realizing their hoped-for profits, has not yet come; or that the profits, if there are any, do not cover the extravagances of living which, in the meantime, they have sanguinely indulged in—when, in short, they find that the bill cannot be taken up; they resort to the expedient of manufacturing other bills with which to liquidate the first. ”

“ The illegitimate speculator is the one who starts with a small capital and with some method, with the idea of increasing it upon a system of incurring risks which, in the ordinary course of the market he may operate in, will enable him in case he has wrongly calculated the course of prices, to pay his losses and go on again. ”

“ One of the resources presenting itself most naturally to men in a position to profit by it was speculating with other people's money, and very naturally the result of such speculation was disastrous in the highest degree. ”

“ Since most of the country’s wealth and commerce is controlled by corporations whose securities are listed on the various stock exchanges, the price fluctuations, which often reach the daily aggregate of hundreds of millions of dollars, either in loss or enhancement of value, are necessarily a matter of general concern. ”

“ At every rise and fall in a country’s prosperity there is a flow and ebb in the tide of speculation, not only in stocks and shares, but in all markets. We refer now to that class of speculation which is an excrescence of prosperous times. A merchant’s business is at all times more or less of a speculative nature, it cannot be otherwise; but this is very different from the speculation of outsiders in commodities which they know nothing about. ”

“ The most prosperous period in the industrial and commercial history of the United States begot an epidemic of speculative madness such as was never before known, and probably never again will be. Everybody had money in abundance, and the desire for speculation in superabundance. ”

“ Under present conditions the abuses of speculation are more in evidence than the economic advantages. How to confine speculation to the small group of risk-takers who have special training and aptitude for it, and to prevent gambling on the stock and produce exchanges is one of the economic problems of the day. ”

“ This is the practice of specie payments, and a most mischievous one it is, too; it is the sole idea that leads to great inflations, and consequently to great collapses in finances and values. Under this system there never was nor never can be a reliable mercantile value to anything. Fluctuation is its direct result, while speculation, without this, would cease, and the vast horde of mere speculators who spend their whole time in it, would of necessity be compelled to become producers of some kind. ”

“ The consensus of opinion among those who have studied the course of speculation on exchanges seems, however, to be that if manipulation of prices and monopoly can be kept out of the market, and if the laws of supply and demand are allowed to operate freely, the effect of speculation, particularly of dealing in futures, has a healthful balancing effect on the market. ”

“ If legitimate trading business, in which the risk of loss is so reduced as to enable a man to earn a living at it, cannot be carried on without adequate capital, how is it possible that pure speculation can be successfully practised in which the conditions are reversed, and at which experience shows that no one can succeed except the professional expert, and only then in some cases under circumstances to which we have before referred? ”

“ Speculators may be divided into three classes which about embraces all the phases of speculation. First, we have the legitimate speculator who spends all or some of his surplus capital in taking off the market what he [133] believes will give him a gain by holding it for some time. That is the legitimate speculator who is a benefit to the community as a leveller up of prices. ”

“ You can and you will reanimate that spirit of reckless speculation, and set up again some of those windy enterprises which have drawn away so much of the capital of the country from productive business, and wasted it. You can and will make our banks and institutions of credit once more the mere tenders of wild speculation and dealers in fictitious values. You can and will seduce our merchants and manufacturers once more to spread their capital and their credit all over creation. You can and will make trade lively for a while by driving up prices to an unnatural height. ”

“ They set forth an exhaustive array of statistics, instructions and warnings; they furnish elaborately charted plans indicating many of the pitfalls of speculation; they tell how to avoid these, how to buy, what to buy, when to buy and how to make money; but while the theories advanced are oftentimes sound and easily comprehended, very few people profit by them, because when once caught in the maelstrom of stock speculation the average man becomes more or less mesmerized, and at critical moments his conservatism, his resolutions and his theories all take flight. ”

“ The great evil of speculation consists in the buying of securities or real estate or anything else with borrowed money, by uninformed people who cannot afford to lose. Its commonest form in speculation in securities is what is known as “margin” trading, this name being derived from the fact that the buyer, instead of paying cash in full for his purchase, deposits only a fractional amount of its cost, which is intended to serve as a margin to protect the broker from loss, while the broker pays the remaining sum necessary to complete the actual purchase. ”

“ Unless a speculator, whether in the Stock markets or any other market, is prepared to lay down all the elaborate machinery, without which, in these times, it is utterly hopeless to attempt to achieve favourable results in any degree, he must inevitably in the long run lose his money. ”

“ A speculative movement need not spread forthwith throughout the industrial system. The great episodes of speculation and collapse that occurred during earlier modern times were not of the nature of speculative inflation affecting the entire business community occupied with industry. ”

“ Fluctuations in employment are tied to all other wasteful fluctuations in our mechanism of production and distribution. One of these wastes is speculation. In securities or commodities, the larger the volume of speculation, the wider become the upward and downward swings and the more certain the result that in the long run there will be more losses than gains in the underlying wealth of the community. ”

“ The intelligence of the people increases by leaps and bounds, and goes peering curiously into all the little nooks and crannies of the world for opportunities of gain—the apotheosis of speculative enterprise.
All forms of human endeavor in material things are, or were at their beginning, speculations. Every ship that goes to sea carries with it a speculation, and leaves another one behind it at Lloyds. Every man who insures his life or his house buys a speculation, and every company that insures him sells one. ”

“ The prices rise, and the holders realize, or appear to have the power of realizing, great gains. In certain states of the public mind, such examples of rapid increase of fortune call forth numerous imitators, and speculation not only goes much beyond what is justified by the original grounds for expecting rise of price, but extends itself to articles in which there never was any such ground: these, however, rise like the rest as soon as speculation sets in. At periods of this kind, a great extension of credit takes place. ”

“ Speculation has become an increasingly important factor in the economic world without receiving a corresponding place in economic science. In the field in which it acts, in the trade in grain and cotton and securities and the like, speculation is the predominant influence in determining price, and, as such, is one of the chief directive forces in trade and industry. ”

“ Had we, as a nation, collected even fifty years ago—speaking of the transactions as a money speculation, in which view, according to the taste of the day, we must look at every thing—our purchases would now have been worth treble the first cost in money. ”

“ Such instances are not at all uncommon; nor is it uncommon to hear intelligent business men remark that they know they ought to sell certain investment securities, because the market price has risen out of all proportion to the income yield, but other good securities are all so high that they really don’t know what to put their money in. The chances are probably a hundred to one that if the money were put in the bank and allowed to rest a while at three per cent. ”

“ The case, however, of speculation in the Stock markets is very different. Although so large a proportion of speculators speedily lose their money, a large proportion of them also, [8] when quitting the arena through want of capital to go on with, seem to entertain a strong conviction that money is to be made at it. ”

“ But with speculators the direction should be, “Do as they do, but not as they say.”
The chief form of speculation is in stocks. These stocks may be railroads, mines, wheat, corn, cotton, wool, tobacco, oil, gas, coal, and, in fact, almost any industry where capital has constantly vacillating values. We have room to mention only a very few:
942. City Bonds.—These are generally among the best securities for investment. The element of speculation comes in when they are bought below par in the belief of an early rise. ”