We are living in unusual times. Stock brokerages offer to make markets on everything from the outcome of elections to the winner of sports games. Companies that once started small and grew over time are now being launched as multi-billion-dollar enterprises after growing in the hothouses of private equity and venture capital. In this environment, investing is often relegated to the sidelines. Who wants to invest for potential income of approximately 4-6 percent and potential growth of approximately 5-10 percent growth when you can potentially get ten times that buying stock options or new issues? In maybe a week or less?
To properly discuss the attributes of each, it is best to have a definition of terms. Gambling is usually a financial commitment to an outcome, usually short term. In most cases the outcome of gambling is either a reward of some multiple of the wager or a total wipe out. Gambling chiefly appeals to those who feel they have some sixth sense to determine the outcome. Most of the time the gambler is wrong. Were this not so, the houses that offer the wagers would eventually go broke. That they do not attests to the odds being in favor of the house and not the gambler.
Speculation differs from gambling in that it is usually for a longer period of time. There is a lot of ex ante thinking. Projections are made, usually by extrapolating the present. If the company or industry is new, projections can look especially logical. A new company or industry initially carries no correlation with the rest of the economy. Future earnings can be almost whatever you want. A proxy for popularity is the Price/Sales. According to Charles Schwab, the overall market is now 3.86 Space X has a P/S ratio of 77.85. This is after its decline of almost half from its offering price. The idea behind being a speculator is to know the disposition of the investing public. A successful speculator latches onto an investment fad early, rides it up and then cashes out before the public does. Some investors believe technical analysis is especially good at telling the speculator when to invest. At its essence, such analysis measures the pressure to buy and sell.
The investor, by comparison, is the least emotionally involved of the three. Investors spend a lot of time looking at company’s financial statements, ratios, and the like. Much of this work is intended to manage the downside risk of an investment choice. The upside is, like the gambler and speculator, based on future scenarios. For an investor, such scenarios can have qualitative aspects that may correlate to other trends. It is this correlation and time frame that separates investing from speculation.
For example, there is a trend of people keeping their cars longer. This can result in the sale of replacement tires being faster than the auto population. While auto sales have flatlined, the sale of tires has gone up. There are other correlations, such as the fact that tires are made from petroleum products and are thus sensitive to the price of oil. Due to their size and weight relative to their price they are easy to import. Tariffs are designed to keep this competition at bay.
For a speculator, the only correlation that matters is a rising stock price of a company over time. If this is not there, no amount of qualitative arguments will sway. On the other hand, the potential of AI or SpaceX can instantly become of interest to the speculator if correlated with rising stock prices. To the speculator, valuation does not matter. What the public is willing to pay up for is the item that matters, until it no longer does. At that time, the speculator sells out and moves on.
The three approaches are not mutually exclusive. Any investment, regardless of duration, has an element of risk. If nothing else, the future is uncertain. A gamble is quickly resolved, win or lose. For some people who cannot bear uncertainty, this would seem the ideal approach. Never mind the downside is zero.
Speculation requires a keen reading of investment crowds. John Maynard Keynes, in an essay, wrote that winning at speculation requires not so much having an opinion but being able to successfully guess the opinion of others. This requires being wired into popular culture and knowing when public opinion changes and in what way.
Investing is the only one of these three approaches that tries to establish a floor on an investment. An investor, especially a value investor, freely admits the future is unknown and thus tries to expose himself in a way that may provide upside and minimize the downside. If the future is unknown, good things are as hard to see in advance as adverse matters. The goal of value investing is to buy what is out of favor, sell it to the investing public when it comes back into favor, and repeat.
Thus, while all investing has an element of speculation and risk, it varies by degree. Risk can be offset somewhat by knowledge of the investment. The pursuit of such knowledge varies among the approaches.
The Economy
Economic activity has slowed, burdened by the cost of oil and higher interest rates. There is still the stimulus of the Federal Deficit along with the billions spent on building out the AI infrastructure. After-inflation growth could be around 1-2 percent this year and depending on the war, could approach 2-3 percent in 2027 looks on tap.
Tariffs, which caused confusion in 2025, are looking to be back in the forefront. The Mad Hatter’s Tea Party approach to the matter has done nothing to assuage the business community in their efforts to minimize their effects.
Inflation
Inflation, which seemed to be coming down with gasoline prices a month ago, could increase in the coming periods. The Federal Reserve target of getting inflation down to two percent is increasingly at the mercy of tariffs and foreign policy, neither of which the Fed influences.
There could be at least another increase in rates by the Fed as they assert their relevance in one of the few ways they know how.
One fact of note: according to the Bureau of Labor Statistics, since 2020, the median home price is up 50 percent nationwide. Median household incomes are up 10 percent. Housing affordability is likely to be a key issue in the fall elections.
Interest Rates
In 2001, the Federal Reserve made the bold claim that future government surpluses would make the issuance of debt unnecessary. So much for forecasts.
At this time interest rates for government debt have gone over 4.6% for ten years and over 5.1% for thirty-year bonds. The ten-year yield is important as home mortgages are generally influenced by it.
The Stock Market
Since mid-year, some market participants are questioning the premise of AI being the investment panacea it has been cracked up to be.
Companies that grew very large in the 2010’s on models that had relatively little in the way of assets are now finding themselves borrowing billions of dollars to build an AI infrastructure to ensure that they remain relevant in the next technological upheaval. This addition of debt for infrastructure assets may make the firms less attractive to stockholders, especially when there is no credible way for the companies to both pay for the debt and provide historical growth rates for the common stock.
At the same time, companies with assets such as oil, minerals, and the like are doing better than the market. Companies with slower growth than AI but positive and growing cash flows are able to buy back stock and increase earnings per share even if their overall rate of profits is growing more slowly.
Warren M. Barnett, CFA
July 28, 2026
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