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Speculation vs. Investing: The Tortoise Always Wins - Part 3

Speculation vs. Investing: The Tortoise Always Wins - Part 3

| April 21, 2021

In the last two weeks, we focused on really understanding the difference between speculation and investing, the pros and cons of each, and how speculation differs from making informed decisions based on market research. This week, I want to get into the present market landscape and the return to the fascination with stock speculation. 

As I mentioned in last week’s blog post, in the previous bull market that ended with the explosion of the COVID pandemic, day trading and stock speculation rose. With the coronavirus flash crash and the subsequent meteoric market rise, opportunistic investors are again on the rise. The recent GameStop phenomenon is a perfect example of what can happen when stock speculation takes hold en masse. 

After what we experienced in the markets in March of 2020, it seems unbelievable that stock speculation would take off again with such furor. Perhaps it is because we have seen growth companies that have not only skyrocketed but beat everything in their path and kept ongoing. Or that, last year, we witnessed a large number of IPOs with mind-bending valuations and no earnings to show, double in valuation after their very first trading day.

As some investors watched the meteoric rise in growth stocks and IPOs, greed set in. It’s hard not to be tempted by the idea of riding a stock to the top and making quick money, especially after the pandemic and massive job loss we went through last year. As a society, the shine of a “get rich quick” idea never seems to lose its luster, but one thing is certain, losing is an inevitability. Because of this, I discourage market speculation of any kind.

The Antidote 

Here it is, folks, the simple truth and the antidote to being distracted by shiny objects in times of turmoil. The trick is never own enough of any one company, industry, or idea to “make a killing” in it or be killed by it.

It’s easy to forget that intentional and thoughtful investing has paid off historically in times like these. Here are a few thoughts to consider:

  1. The concept of “best-performing” indicates that the stocks performed well in the past, which we all know guarantees nothing in the future. 
  2. Broad portfolios offer more protection because they are diversified. Narrow portfolios tend to underperform because there aren’t enough positions to soften the blow.
  3. Buying the hottest, latest, and greatest company is gambling on continued “hotness.” We all know how that ends up! Think about the tortoise and hare fable - tortoises invest, hares speculate. It’s always better to be the tortoise.
  4. Don’t let your fear of missing out take you on a unicorn hunt - they don’t exist! Unicorns come in shiny, overvalued, earnings-deficient packages that should have a poison control sticker on them.
  5. Stick with the winners - that means staying broadly diversified in mainstream equity investments.

With that, I am stepping off my soapbox, but I will leave you all with a final word of wisdom. Stay in the market and ride it out because the tortoise always wins.

Stay tuned for Part 4!

P.S. If you enjoyed what you've read here and found it beneficial, we encourage you to share it with your friends and family. I firmly believe that an educated investor is a healthier and more confident investor. 

Until next time…

Source: Murray N. (2021, January). The Tortoise, The Hare and the Unicorn. NMI Nick Murray Interactive. Retrieved from URL 

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