I recently responded to a frustrated investor who had more often than not had been caught on the wrong side of their trades. They were involved in so many types of investments. They were buying commodities, futures, options, SPAC's, penny stocks and more. I would more aptly characterize the way they were working with those investments as speculations.
Many people involved in the investment markets consider their activities as being "investments", but they are often more likely "speculations". It is important to understand the difference between the two.
In the seminal book on value investing, The Intelligent Investor", Ben Graham describes the difference. “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
An investor calculates what a stock is worth, based on the value of its businesses. A speculator gambles that a stock will go up in price because somebody else will pay even more for it. As Graham once put it, investors judge “the market price by established standards of value,” while speculators “base [their] standards of value upon the market price.”
So before someone invests the first dollar, they should be clear about if they are an investor or a speculator. Without clarity of purpose, it is easy to "go down the wrong road" and, instead of increasing wealth, decrease capital - often significantly!
One of the best approaches is to apply the KISS principle - keep it simple stupid. Successful investing doesn't have to be complicated. In fact, complication usually exposes investors to unforeseen risks that often result in significant losses. In investments, if the investor doesn't understand the investment completely, they leave themselves open to being blindsided.
For most investors who don't have the time to understand the in's and out's of complex investments, a simple approach is often best.
Here's a simple approach that can build significant long-term value. Buy only large cap quality equities (Dow and top S&P stocks) with current earnings and reasonable PE’s relative to the market - say 10 stocks. Hold no matter what the market does. Don’t get spooked by the inevitable downturn that will occur. Forget all the fancy bull shit that Wall Street firms sell - trading, commodities, options, short sales, etc. Buy more when the market drops.
Remember that stocks are the only item that most people want to buy more of when they get more expensive and less of when they get cheaper. Buy investments like buying groceries - buy when the price goes down..
Be smart, be well-read, be aware and be successful.
