Investing vs Speculating

There's a fine line that we have to thread between investing and speculating, so I think that's important to know on roughly which side of the line we are staying on. As we have come to know, investing is something that brings about good returns in the long run while speculating focuses on short-term gains and bears a much higher risk of losing principle. Anyway, so in this post I'll be covering the differences between the two.

Growth Investing vs Value Investing

Just started reading Common Stocks and Uncommon Profits by Philip A. Fisher. This book seems to be going into growth investing, which I think is good to compare to value investing (You can read on my thoughts on different investing styles at Value Investing and Thoughts on Investing for Dividend Yields). While both share similar ideas (such as fundamental analysis and buying stocks on their "intrinsic value"), they have some differences such as their focus on "intrinsic value" (slight difference between the two in my opinion)

(Image source: http://www.stockopedia.com/content/the-truth-about-growth-investing-it-works-67194/)

Intrinsic Value - Discounted Cash Flow Model

This is the next part of calculating intrinsic value, where another way to value a share, the Discounted Cash Flow Model (DCF Model) will be introduced. This model is very similar to the Dividend Discount Model (linked to the post) and I would advise that you read the section on it before coming here to get a better understanding of some of the key terms as well as methods to calculate.

Intrinsic Value - Dividend Discount Model

This is a section which I thought I should add to the Understanding Financial Statements topic as after understanding the financial statements, the next thing that an investor would or should know is how to use this information to value businesses. Of course, there are also as many intrinsic values of businesses as there are people valuing the business as there is no hard and fast rule on intrisic value and the factors which have some of the greatest impact on calculation come from the perception of the investor, which can and will, vary from investor to investor.

This section will cover two popular methods, the Dividend Discount Model (DDM) and the Discounted Cash Flow Model (DCF Model). This has been split into 2 parts when writing as each model takes quite a lot of explanation as well as diagrams.