Speculator or investor? I found out the hard way

Tuesday, 26 May 2026

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.

OPINION: Years ago I speculated on the New Zealand currency. I was certain that the NZD would fall (it was much too high) and I was so convinced of this that I took out futures contracts so that I made money when that inevitable fall came.

Neither the fall nor the money-making happened. I lost money – it hurt but taught me a good lesson.

The big lesson that I learned was that there is a difference between speculation and investment. From my early days of investment, I was clear that I was a fundamentalist – I believed that investments should be made on the basis of fundamental financial metrics like price:earnings ratios and capitalisation rates. It was the amount of future income that would flow to the investor that was important and which determined whether a prospective investment was a buy or a sell.

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At the time of my NZ dollar trade, I knew nothing of speculation except that the word mostly seemed to be pronounced with distaste. Only some years later, when I had read people like Benjamin Graham and John Maynard Keynes, did I understand that for investment professionals, speculation meant to buy something for short-term gain which had no income nor prospect of income.

The difference between investment and speculation is chalk and cheese. One focuses on income (how much of it there is, whether it is sustainable and could grow) while the other focuses on market sentiment and on whether there will be enough buyers to drive up the market.

Investors buy assets which have the prospect of income and that income gives investments their value; speculators buy on the basis that someone else will pay more than they did for the asset. Investors aim to build their wealth slow and steady; speculators look for a quick flick.

Investment focuses much less on the markets and much more on income – if there is enough income and the income grows there will also be capital gains. Investors focus on income and let capital gain take care of itself.

If you think about it, there are only three asset classes which you can invest in. Only shares in businesses, property and interest-earning deposits (bonds, bank deposits etc) have income. Only these things give a return without depending on a sale at a better price; only these are valued by analysis of their future income.

I have little idea how you put a value on things like precious metals, commodities, crypto, and the other things that people speculate on. Scarcity would be a factor, but it is probably mostly the mood of the markets (and who can put a number on that?).

Speculators often play the momentum game but that has always seemed to me to be like a game of musical chairs – the music always stops eventually.

People might buy crypto, gold or currency futures for other reasons: some people buy gold as a hedge against fiat currencies collapsing (I understand this even though I think it misguided - the chances of major currencies going back to the gold standard seem about zero). They might buy currency futures contracts because they are importers and need certainty of price.

Of course, things like shares and property can get into speculative booms when prices completely outstrip prospective income. Some say that we are in one of these now with the AI boom – I would disagree but even so, Berkshire Hathaway (Warren Buffett’s company) is holding $400 billion in cash as it waits for a crash.

There is no perfect safety in investment but there is even less safety in speculation. Things can go wrong in either, but investment assets at least have some income, or the prospect of it.

Investors, with their focus on income, know that the interest, rent or dividends they receive give a bond, property or company its value. Gold or currencies, on the other hand, have little intrinsic value beyond market sentiment, and the hope that others will be willing to buy.

The difference between investment and speculation is not simply semantics. It is important to know what you are doing and then stick to it.

I know it’s tempting: that quick flick for a boost to your finances. But there is no such thing as certainty in any market, no such thing as a sure thing. I learned the hard way, and I have stayed on the smoother road of investment for long-term profit growth or rent ever since.

Martin Hawes is not a financial adviser, and the information and opinions here should not be taken as financial advice.