Dangers of Speculating

Speculating is the most common way for people, especially students, to attempt to decipher what stocks to buy and what to sell. I am singling out students particularly since students tend to be more confident in their abilities and therefore might feel as if they know where a stock will go. Speculating however is a dangerous way to decide how to invest your money. Since the market has been in existence many have speculated and a very slim amount have succeeded. Those that have succeeded got very lucky. Many that want to invest, especially students want to because they want to be worth a lot of money and live posh lives. However, if you look at any list of billionaire investors none are speculating, they are either value investors or activist investors. These are the two most reliable ways to make money in the stock market. But before we talk about these approaches we first need to talk about the dangers of speculating.wall-street

What is Speculating?

According to Benjamin Graham, legendary investor and the father of value investing, speculating is where someone does not exactly know what they are buying. An investor on the other hand, thoroughly researches the companies they are investing in. Speculators also usually take a lot of additional risk than an investor. The most common thing that I have found about speculators is that they usually don’t have a logical reason based off of numbers and management to buy or sell. An example of a speculator is Jim Cramer. Cramer makes a lot of claims unsubstantiated by facts on his show Mad Money most of his claims are just speculations of how the market or a stock will perform.

“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”-Benjamin Grahambenie graham

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