A Speculator has different goals and style from an Investor. Which is best? Today, we’re continuing the series on asset allocation.
“As you do not know the path of the wind,
or how the body is formed in a mother’s womb,
so you cannot understand the work of God,
the Maker of all things.” (Ecclesiastes 11:5)
When investing, it’s important to focus on those things you know most about. When it’s prudent to diversify into areas that don’t know as much about, then you should be as diversified as possible so that what you don’t know doesn’t hurt you too bad.
We’re going to look at three major philosophies to market investing. There are certainly more, but we’ll look at…
1) The Macro Economic Thinker (Speculator)
2) The Value Investor (Investor)
3) The Trader (Speculator)
4) The Growth Investor (Speculator)
One way to introduce our first philosophy is to ask you how your mind best thinks about the markets…
1) Do you tend to think big picture?
2) Or do like to get into the numbers to assure accuracy?
3) Perhaps you like to make fast decisions based on an understanding how things flow, charts, and a gut feel?
4) Maybe you have a great feel for the stories & emotion that will captivate the marketplace and thus you sense you can get in ahead and profit?
One way to narrow down your own philosophy is to ask yourself whether you are more inclined to use individual securities or funds (or both) when investing in the public markets portion of your portfolio.
Let’s give one last stab at defining the difference between an Investor & a Speculator…
An investor is looking for a slower steadier way to increase his portfolio year after year. He will have most of his money at work in this portfolio because he believes that each asset is a good long term hold.
A speculator will only put a small portion of his portfolio at risk and he will only buy things that he believes will make multiples of his original capital at risk.
This is Part 6 in a series on asset allocation and diversification. You can follow the links to read Pt 1, Pt 2, Pt 3, Pt 4, or Pt 5.