There are investors.
And then there are speculators.
The former pursue lower-risk investments based on fundamentals and analysis, while the latter pursue high-risk investments that are sometimes borderline gambling.
So, by those definitions, many "investors" aren't actually investors.
In an interview with the Financial Crisis Inquiry Commission, Warren Buffett outlined what he believed to be the "real test" determining whether a person is an investor or a speculator.
The interview comes from a document dump from the National Archives, which released transcripts, meeting agendas, and confidentiality agreements from the FCIC. The group was set up by Congress after the financial crisis to look into the crisis' causes.
As Buffett said:
And I say, the real test of how you — what you're doing is whether you care whether the markets are open.
When I buy a stock, I don't care if they close the stock market tomorrow for a couple of years because I'm looking to the business — Coca-Cola, or whatever it may be — to produce returns for me in the future from the business.
Now, if I care if whether the stock market is soap tomorrow, then to some extent I'm speculating because I'm thinking about whether the price is going to go up tomorrow or not. I don't know whether the price is going to go up.
The FCIC also asked Buffett how he would define the "speculation." Buffett had an interesting answer there, too.
"It's a tricky definition," he told the FCIC. "You know, it's like pornography, and that famous quote on that."
Regarding whether something was pornographic, Supreme Court Justice Potter Stewart wrote, "I know it when I see it."
"Speculation, I would define as much more focused on the price action of the stock, particularly that you, or the index future, or something of the sort," Buffett continued.
"Because you are not really — you are counting on — for whatever factors, because you think quarterly earnings are going to be up or it's going to split, or whatever it may be, or increase the dividend — but you are not looking to the asset itself."
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