Speculating
What is speculating?
Webster defines to
speculate as, "to take a business risk in hope of gain."
The main focus in all speculation is profit. Since the first days of
recorded history, the urge or need to speculate has been a driving factor
in the development of humankind. The farmer who has set seed in the
ground or raised animals has been constantly engaged in speculating on
nature. Should he plant early? Will there be sufficient
moisture to support a crop of corn? Will there be an early
frost? Are prices now best for marketing his crop? Will there
be a demand for my animals? Will disease strike my animals?
Will government actions adversely affect prices for my products?
Speculation and life are so intimately intertwined that not to speculate
means not to exist. To some degree, all forms of investing can be
categorized as speculating. But what I would like to focus on is
short term speculation. This would include trading/investing in
stocks for periods of less than one year and more often less than six
months.
What risk are involved in speculating?
Risk is an inherent aspect of life. We often fail to
realize the risk and uncertainty in our daily lives. To drive an
automobile, fly in a plane, or even walk on the streets, we must be
willing to speculate on the outcome of our actions and of those around
us. We are by nature speculative beings. Living in a world of
constant change, instability, aggression , and uncertainty, we must be
willing to accept risk. Some are willing to accept more risk or
might even consciously seek a higher degree of risk than others.
Short term speculation holds true to the risk reward ratio. The greater the risk, the greater the potential for reward. Typically, the shorter the term, the greater the risk. This can range from buying and selling an individual stock intra-day to buying shares in a mutual fund (containing hundreds of stocks) and holding them for ten, twenty, thirty or forty years. Just as an increase in time usually decreases risk so does diversification. Investing in individual stocks verses shares in funds that contain hundreds of stocks requires the investor to accept more risk. Short term speculation in individual stocks would therefore hold the highest degree of risk but in turn offer the greatest potential for return.
Is speculating for everyone?
Short term speculation is NOT for everyone. For some, the time required to search for short term opportunities is not an option due to work and/or family commitments. For most, basic personal financial requirements have not been met which are an absolute requirement before short term speculation is even considered. Using my "5 step plan", you should be well on the way in the establishment of a long-term investing program (step 5) before short term speculating is even considered. It does not however preclude you from beginning a self-education program in the basics of the stock market and building the knowledge you need to successfully manage your investments.
To realize exceptional rates of return relative to the average investor, you must become an "educated" investor. How do you become an educated investor? By taking the time to learn and increase your knowledge. We live in the information age where there is an unlimited number of resources available at the touch of a computer key. Small steps in the right direction will make a BIG difference over time! STAY FOCUSED AND THINK INDEPENDENTLY! This website is a beginning. Read every word and start exploring the many different links available.
Where To Begin?
