YES, if only partly. Speculation is normal trading activity and accounts for a piece of the planned profits.

When someone plans to build a power plant (as an example), he estimates that the costs of construction and finance, wages, fuel (oil, gas, coal, …) and other OPEX items will in sum be lower than what he will be able to earn with it. A lot of very diverse information items have to be factored into a very complex calculation (including future prices for fuels to name but one) in order to reach FID (Final Investment Decision). Such a venture is generally not regarded as being speculative in nature as we deal with assets here and people in general do not regard investments in assets as being speculative.

Trading starts with a fixed opening price called opening position and the only other information that must be analyzed is the closing position. This is a much simpler and more straightforward process but it is considered speculative. Both present risks but in trading they are much clearer, more transparent and limited (valuation and accounting regulations, trading systems, risk management systems, daily profit and loss appraisal, etc.) than in projects that are much harder to evaluate. Companies like big, obscure projects because they allow them to hide “Bad assets and mistakes”. In trading that has become virtually impossible except of course in case of outright fraud (faking data etc.)!

Superior information on market developments and their evaluation as well as access to multiple commodity markets allow us to raise margins.  Not all positions we open will develop favorably. That’s the nature of business itself. The sum of positive deals shall exceed the sum of negative deals so we can realize overall excess profits. In the end profits need to exceed losses. We will not aim to hold on to every deal in the hope that it might eventually turn positive. Negative deals are closed which prevents the buildup of looming liabilities through negative portfolios.

In the end we all speculate every day. It’s just a matter of perception. EV will not gamble on the market but rather take well calculated risks where the risk / profit ratio is sound. EV will stay away from extremely risky trades even if they offer the potential of a very large upside. EV’s policy is to rather collect the less risky money day by day through accretion.