The GOOD Art of Speculation

How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen, author of “Creating Wealth”


Burn that observation into your brain.  Don’t listen to the negative “savings account people” who tell you that you’re a foolish gambler for trading forex, and that you should just be like them and park your money in a savings account (currently earning a whopping 0.01% annually in the U.S.).  Those people will never help you make a million dollars – forex trading can.

You’re not a bad guy.” – Franny, to Jeff, in the movie “Kiss the Sky”

I get very, very tired of hearing people – people who have virtually no understanding of the financial markets – use the words “speculation” or “speculator” as if they’re “very bad things”.  They’re not.  Speculators provide the market liquidity that makes for relatively smooth adjustments of value and price in the markets.  Speculators aren’t bad guys, they’re helpful guys.  Speculators are the people who create fortunes, nourish ideas, businesses, and economies, and who help create “the next big thing”.  Bill Gates and Steve Jobs were speculators; Warren Buffett is a speculator.  All venture capitalists – the people who fund start-ups for new ideas and new businesses – are speculators.

Speculators are the good guys, not the bad guys.  Consider Paul Tudor Jones, one of the most successful speculators of all time, who parlayed a career as a cotton futures trader into becoming one of the 500th richest men in the world today.  In 1988, he used his fortune to create the Robin Hood foundation to fight poverty, one of the most innovative and effective charitable foundations ever created, and one that contributes over $200 million a year to alleviating poverty and helping people achieve their dreams.  Uniquely, the board of directors pays all of the foundation’s operating costs, thus enabling a full 100% of donations to go directly to poverty-fighting programs.

Be proud to be a professional speculator.  Don’t let people make you feel like you should slink around in the shadows with your coat collar pulled up to hide your face.  Rather, you should walk with your head held high – like a championship athlete, a famous actor, or an accomplished writer.  You are a member of a profession that only a few people even aspire to, and even fewer are notably successful in.

Speculation – the Road to Riches

People who really know how to create a fortune – people like Robert G. Allen, quoted above, or Robert Kiyosaki, author of “Rich Dad, Poor Dad” – will plainly tell you that –

A)You’ll likely never get rich just working at a job – very few people ever do, and

B)The best way, and the easiest way, to build a fortune is to put your money to work for you creating more money, and that involves speculation

Think of virtually every legendary “rich guy” – Rockefeller, Vanderbilt, whoever else you can think of – they were all speculators, men who took risks in order to build incredible fortunes.  And aren’t those the people that you aspire to be like in the financial arena of your life?

Modern usage has made the term speculator a synonym for gambler and plunger. Actually the word comes from the Latin ‘speculari’, which means to spy out and observe. I have defined a speculator as a man who observes the future and acts before it occurs. To be able to do this successfully — and it is an ability of priceless value in all human affairs — three things are necessary: First, one must get the facts of a situation…Second, one must form a judgment as to what those facts portend.  Third, one must act in time, before it is too late…If action is delayed until the need is apparent to everyone, it will be too late.” – from “My Own Story”, by Bernard Baruch

Investopedia notes that there is a critical difference between speculation and just plain gambling, as speculation involves taking a calculated risk, and the outcome of speculation is not dependent upon mere chance.  When I buy Aud/Usd, I’m not just hoping it will go higher, I have logical reasons for believing that it is more likely to go higher than it is to go lower.  And not only that, but I have calculated the risk/reward ratio and determined that my potential profit significantly outweighs any potential loss.

I’d like you to particularly note Baruch’s observation that speculation is “an ability of priceless value”.  People who take the necessary time and make the necessary effort to become successful speculators are like professional athletes.  They are the cream of the crop, the top 1% who stand head and shoulders above the crowd.  Speculation is indeed a profession, and it is both an art and a science.  The science part involves analyzing the data and calculating the potential risks and rewards; the art is developing a feel for the markets and for trading, the kind of feel that allows you to detect the earliest rumblings of a coming earthquake-like shift in price and value, and to act on them.

So, what are the keys to being a successful speculator?

I’ve found that luck is quite predictable. If you want more luck, take more chances.” – Brian Tracy

I will tell you how to become rich…Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett

In investing, what is comfortable is rarely profitable.” – Robert Arnott

After analyzing the available data – which, in trading, includes fundamental factors and news, along with price action and technical indicators in the markets – you should first calculate the potential risk/reward, profit/loss of various investment opportunities.  Then add in your intuitive feel for the market, developed through the time and effort actually spent trading.  You should view every trading day as an athlete views practice and games – that is, as valuable time spent honing your skills and making yourself a better “player”.  And then, as Bernard Baruch teaches, you must act, before future price movement has become clear to pretty much everyone on the planet.  Take a calculated risk that promises potential rewards that are significantly greater than the accompanying risk.  This may sometimes necessarily mean pressing the boundaries of your comfort zone – buying when others are selling, or selling when others are buying (as Buffett stated, “be fearful when others are greedy”).  Speculators aren’t expecting to be right on every trade; they’re merely aiming at making massively more money when they are right than the amount of money they may lose when they’re wrong.  Again using the example of venture capitalists, they don’t believe that every business they invest in will ultimately be successful – but they invest their money having carefully calculated the odds that the profits from just a few of their investments will be significantly greater than any losses incurred from investments that don’t work out.  Warren Buffett follows essentially the same formula – Berkshire Hathaway hasn’t become massively profitable by being right 100% of the time, but just by seeing a lot more on the profit side than on the loss side.  Carefully calculating rewards and risks, having the courage to act, and minimizing losses while maximizing gains are the characteristics that define successful speculators – and that eventually make them wealthy beyond their wildest dreams.  (By the way, those characteristics also guide the Double Trend Trap strategy that you can find here at Winners Edge.)

Dare to dream.  Dare to be a speculator.

One of the main characteristics that distinguish professional speculators is that we’re willing to risk losing in order to win; willing to take a few losses in order to make the colossal gains that create genuine wealth.  Not everyone is willing, or has the stomach, to take those risks.  “Savings account people” don’t.  But people like Rockefeller, Buffet, and Bernard Baruch do.  Which group of people would you rather belong to, be associated with?  Would you rather make a 1000% return on your money…or just 0.01%?

Me, I’m a speculator.  And happy to be one.  I have my own business – my trading business, that is; as a speculator, I’m not dependent on anyone else for my income; and I have the ongoing opportunity to make more in a month, or even a week, than most people make in a year.

Jack Maverick

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