Many financial bloggers and professional investors have a bias against speculative investing. Speculating is not investing it’s gambling, they say.
Gambling is going to the roulette table and hoping you hit the 1 in 36 odds of winning without any reason other than hope or I have a good feeling. Speculating is making an educated decision based on the information available, your knowledge and life experience.
If you had put $1000 into Amazon stock at the IPO you would have over $1,000,000 today. Even $1000 ten years ago would now be over $20,000. You won’t get those kinds of returns in 30 years from buying the index or through blue chip dividend stocks. That’s just the reality.
Since the beginning of time the one who was able to see further into the future with better accuracy has always been valuable. Picking successful speculative stocks or even blue-chip stocks is a play on being able to predict the future better than others. Some people believed online shopping was going to be a thing and others didn’t. People will never put their credit card information online! It’s not likely you’ll have a good understanding of multiple industries but once in awhile something comes along that might be in your field of competency.
The majority of people are really good at following conventional rules and only being able to see what’s in front of their face. To them, if a stock doesn’t meet the criteria of being under 25x P/E and having several years of profit then it’s not worth looking at — if the company’s vision is not producing the numbers yet then it’s garbage. Home Depot was a speculative stock until it wasn’t.
It’s not fair to give the advice to never buy speculative stocks. Saying speculating is not investing is just semantics. It comes down to a matter of risk vs reward. You have to be careful though and know your limitations.
In late Dec of 2017 at a steakhouse he stuck his phone in our faces as soon as he was seated. “Look at this!” He could barely contain himself.
I don’t remember the exact number because all that mattered was the “$9” preceding the other 5 digits. The fat bastard was showing us his cryptocurrency wallet. I don’t like it when other people succeed greatly so my first instinct was to deny the credibility of the situation.
A few months prior he put in $20,000 into an initial coin offering and somehow the value skyrocketed almost 50-fold. This was at the time when bitcoin prices were parabolic. “You going to cash out?” I asked.
“Not until it hits $10,000,000,” he replies.
I advised that he should cash out at least $100,000 but he wasn’t interested. Hey, what do I know? If it was me I wouldn’t have even put any money into this, and if I did I surely wouldn’t have held this long. You have to be a certain type of crazy to get rich quick.
Not even a month later I hear he’s up to $2,000,000 with this “coin” which doesn’t even do anything. What do you own? A piece of code? Being at least $8,000,000 from his intended exit target he still doesn’t cash out anything. Again, what do I know? I definitely would have cashed out in late December and wouldn’t be up $2,000,000. Who am I to stop someone’s dream of yachts and butlers.
Shortly after being up $2,000,000 the value of all cryptocurrencies plummeted 75% or more. I’ve never asked but my napkin math tells me his digital wallet is now displaying a value somewhere around $250,000. A mere glimmer of what it used to be but more than enough to have someone and their hamster professionally killed.
There’s a lesson here somewhere.
- Don’t buy into foolish investments
- Cash out at least a little bit on the way up
- You can’t make 50 times your money if you sell at 25 times
- You can’t make 100 times your money if you sell at 50 times
- Sometimes you have to take people’s advice
- Sometimes you shouldn’t listen to anyone
Where I live in Vancouver, BC, real estate is ridiculously expensive. Anyone who could have got in before 2010 but didn’t is kicking themselves. If you were born in 1990 and after then there’s not much you could have done. There were many though who were 30 or 40 years old in the beginning of the millennium and did nothing.
We all know by a fairly young age that real estate will eventually go up but many don’t pull the trigger until they feel they have to(about to get married or have kids) or when they have too much money sitting around.
Evolution is slow. People like to move slowly because it’s more comfortable. They put off buying a home so that they can save more money or they tell themselves that the market might go down. If you want to be ahead of most people your age then you have to move faster than them.
When the water is calm people lounge around. When the big wave hits or the sharks are circling, people piss their pants, panic and herd in. Once prices go sky high people are now eager to jump in. It’s just human behaviour.
So are you sure you want to wait? “Expensive” is a relative term.
Sometimes I eat potato chips multiple days in a row. I’m torn between buying small bags or bigger bags. It’s a dilemma of economics or health. Small bags at the local convenience store will cost me $1.75 which doesn’t sound like much but imagine that being an everyday expenditure. In a month that would equal $52.50 and this is assuming you don’t buy anything else. You’re already eating potato chips every day, what makes you think you’re not going to be a bigger loser and buy a soda or a lottery ticket?
That $52.50 would equal over $600 a year. It doesn’t sound like much but at the same time all you’re getting is potato chips. It’s the small habits that can chip away at your money. If you’re filling up gas you don’t have to come out of the gas station with anything else but fuel for your vehicle. There’s probably a long list of daily habits or bigger weekly habits that you can cut out.
The other week while I was walking my dog I asked a woman I sort of know if she was into the stock market. She said that she wasn’t and that she just puts her money into mutual funds. “Then you are in the stock market,” I said.
It made me realize that many if not most people are okay with the idea of having money in the stock market, they’re just not comfortable with managing their own money. Having it managed professionally gives them comfort.
That guy or gal at your bank signing you up into one of their mutual funds is not an expert in the financial markets. If they were so much smarter than you in the markets they would be sitting on a beach instead of their crumby office. They’re salespeople. They get a commission and their company gets a 1-2% cut from your whole investment every year, win or lose. Easy money. In return you might make money but most of all you get the comfort of believing you’re doing what’s right.
Going through my bank’s list of mutual funds I found that the one with the highest 10 year return and lowest fee was a S&P 500 Index fund. They won’t ever push this fund though because it’s not very actively managed if at all since it just follows an index. In order to justify their 1-2% fee they have to make it seem like they’re doing something even if it means actively losing your money. 1% doesn’t sound like much but it really adds up.
I suggested to this woman that a low cost S&P 500 ETF would probably have much lower fees and a better return and that she should check the annual returns of her current mutual fund and compare.
“Nope, no, I don’t want to deal with it. I don’t know anything about that stuff,” she said. This is why financial advisers even exist. When people see their mutual fund tank or languish they don’t want to blame themselves and be confused on what to do.
The truth is you don’t have to know anything. You start a trading account and periodically put money into a Vanguard or Spyder ETF. It’s easier than online shopping.
When news gets out that Warren Buffett buys a certain stock it usually jumps up a few percent. The morning I found out he had bought billions of dollars worth of Apple stock the price went from $90 to $93. Today, close to 2 years later it’s hovering in the $180 range.
You won’t know exactly when he bought it or for how much but you can look up that stock’s price range in the quarter he purchased it. If the price is only 10% higher than the lowest price for that quarter then you may have found a deal. If Warren Buffett puts that much money into a stock he’s betting that it’s going to go up way higher than 10%.
Buffett bought all the major American airlines in the 4th quarter of 2016. By the time I found out about it all of them had gone up significantly in price except American Airlines. Again, I didn’t pull the trigger. The stock went up as high as $59 but came back down to the range of $41 where I first saw it at.
This time I pulled the trigger on American Airlines and Southwest Airlines, $41.60 and $51.40 respectively. I feel good to own some stocks that are Warren Buffett approved. This sounds like amateur hour advice but to me it’s rational. He’s done all of the due diligence for you. A stock pick endorsed by him can only be so bad.
Most people have accepted that they will never be rich. Most people have also accepted that they will be working full-time until they are 65 years old. The reason for this is because the #1 priority for people is to conform.
Don’t be so down on yourself for being afraid to be left out because it’s perfectly human. We may be a civilized society with the luxury of being able to urinate in perfectly clean drinking water but our brain still has the same wiring as it did 100,000 years ago. To be left out of the tribe basically meant death back then. The instinct to fit in makes sense since it would be paramount to survival.
If you do what most people your age do then you’re likely going to end up on a similar path as them every step of the way which means working an undesirable job until you’re 65. It doesn’t sound so bad, right? It doesn’t sound so bad when you’re 20 or even 30 but soon after you’re going to get pretty sick of the daily grind and by that time you might be handcuffed to that life.
Even if you gave most 20-year-olds a recipe to be able to retire by 40 they wouldn’t follow it even if they believed in it. People don’t want to “miss out” on life. Life: nice stuff, vacations, eating out, big wedding, “friends,” you get the point. They’ll just tell themselves it’ll be okay to follow the traditional path. Maybe they believe this or maybe it’s just comforting.
I was 25 years old once. Financial independence in your 40s was too abstract an idea for me to handle. I didn’t want to miss out on life. I didn’t want to make sacrifices or take risks that could potentially oust me from the tribe. I thought following the traditional path was what life was all about.
Financial independence at a relatively early age puts you way ahead of everyone. If you want to be exceptional then you can’t be doing what everyone else is doing.