Managing speculation risks, returns and failures seek high wealth building returns while accepting the risks of failure or a total loss.
What you learn about managing speculation risks, returns and failures:
Managing risks, returns, and failure are important investing skills of superior investors that you can learn. Do that to join the skillful investors who work to increase returns while decreasing risks. They know risks and returns are related but not directly connected and each can be separately managed.
FAQs investors asked about
managing speculation risks, returns, and failures!
These questions and answers about managing speculation risks, returns, and failures have overlapping answers which help investors understand how stock markets, investing, and money-making interrelates.
Do high risks equal high returns?
High-risk investments can produce spectacular returns, but they are rare and more often unsuccessful as most high-risk investments are unreliable return producers and often deliver a complete investment loss.
Despite their extensive knowledge and experience, even the most successful speculative traders must inevitably deal with losses.
When seeking fast returns, speculative risks can complicate matters. In comparison, steady income-earning portfolios may seem dull. Still, they offer stability, security, and steady returns crucial for long-term wealth building.
What stock market investments have the highest returns?
Reliable income streaming portfolios steadily and safely pile up returns in all markets. While not especially exciting, that steady progress makes income investing the long-term winner.
But trading produces the highest short-term returns when markets are favorable. So trading attracts knowledgeable and attentive investors in good markets, although the performance is poor in unfavorable markets. That means trading produces a mixed overall result.
And the spectacular short-term winners in perfect market conditions are the rare speculations that grab headlines. Those stunning wins are the exceptions because most speculative investments produce losses that can include a total loss of capital! Overall, speculative investments have poor returns.
Why is speculative trading dangerous?
Speculative traders take high-risk capital bets hoping to make a significant profit. Companies they buy may have no net asset value, be pre-revenue, or have negative cash flow. While substantial short-term profit possibilities exist, most end as an investment loss.
For success, speculative gains must cover the inevitable failures of this high-risk strategy. While short-term gains happen, centuries of stock market history show high-risk trading strategies have an unending record of losses.
Successful speculations take considerably more knowledge and experience than less risky investments. Although less exciting in the short-term, long-term investment strategies can generate steady, stable, safe income and much more profit!
What are the dangers of speculation?
Speculative trading risks are akin to gambling and a threat to wealth. While the potential handsome profits allure investors, the significant risks include a complete capital loss.
While speculation does introduce liquidity to the market, it can also inflate a stock market bubble. And when bubbles inevitably burst, economic destruction follows.
Overall, speculations' unreliable and infrequent big payoffs pale compared to the long-term wealth-building performance of income-earning portfolios.
How do investment or stock failures improve markets?
Although painful for anyone losing money, failed businesses listed on stock markets are opportunities to reuse capital, a positive feature of capital markets. Selling or liquidating the failed businesses removes the weak operations from the market and recovers capital.
Investing the recovered capital in new or established companies helps them grow profitably. That improves markets and allows investors who experienced losses to move on as owners of new or successful business operations.
Are speculative investments worth the higher risk?
Speculative investments can be lucrative, but they come with risks.
Managing speculative investments requires more knowledge and time than trading or income investing, may not result in high returns, and has the risk of a total loss.
In contrast, income-earning assets offer steady and secure returns with little risk of loss, even in fluctuating markets.
Although that may seem dull compared to the excitement of speculations, these returns compound into major winners over time, making them the best choice for anyone serious about wealth-building.
So yes, speculative investing can be lucrative when you know what you are doing and have the needed knowledge. But most investors should avoid the risk by taking a pass or strictly limiting speculative investing.
Does stock speculation work for investors?
While speculations can be profitable, they involve high-risk ventures with many complications. Those complications can mean a failed investment or inconsistent outcome is more likely than a spectacular speculative return.
While high-risk investments occasionally generate significant returns, the result is often a complete loss. Such a loss can erase years of gains, deplete capital, and devastate portfolios.
In contrast, a less adventurous income-earning portfolio consistently accumulates safe returns. Over time, this steady and secure approach builds wealth without fail. This proven method has stood the test of stock markets for centuries. The record shows, without exception, income investing outperforms speculation over time.
What are examples of stock market speculative risks?
Stock market speculations come with numerous risks, including:
Volatility: Wildly fluctuating prices mean rapid gains and losses.
Market Timing: Impossible to time markets means counting on luck.
No Fundamentals: No earnings or growth uses hype, not facts.
Liquidity Risk: Buying or selling can move low-volume prices a lot.
Event Risk: Outside events add uncertainty and quick price moves.
Leverage: Borrowed funds amplify gains or increase losses.
Speculative Bubbles: Losses flow as hype-created bubbles bust.
Single Stock Risk: Few high-risk stocks mean risk overexposure.
Information Void: Insiders have an information advantage.
Psychological Bias: Overconfidence or FOMO biases move prices.
Managing risks takes thorough research and advice when needed.
How does stock speculation impact the economy?
Stock speculation can have both positive and negative effects on the economy.
Speculative ventures can launch and fund high-risk developments that create jobs and expand the economy. But those success stories are rare, as most speculative start-ups fail.
All economic activity, including speculation, adds complexity and risks, with the negative declining wealth of losers offset by the winners' gains.
That is creative destruction at work. The lost losers' capital goes into the expanded productivity, employment, opportunity, and profits of winners. The result is the prosperity of a strengthened and expanded economy.
Is speculation a type of trading?
Speculations are trades betting significant price movements will produce big returns to offset the possibility of a total loss.
High risks beyond what other traders can accept are OK for speculative traders aggressively seeking significant and fast returns. They are gamblers, the opposite of patient low-risk income or value investors.
In favorable markets, strongly rising prices can make speculations lucrative and exciting fun! However, speculative wins are much harder to find in volatile or down-trending markets. And total losses do happen!
In downtrends, knowledgeable and experienced speculators turn to short selling.
Why is high return so often high risk?
Risk and return are a trade-off, with ever-higher potential returns coming with ever-higher risks. But it is not a direct relationship; accepting risk has nothing to do with enjoying a return.
That is where knowledge and skill enter the investment picture. In particular, risk management is a skill of informed investors with records of success. When fast money seeks spectacular returns, risks complicate matters, which puts risk management and control at or near the top of the to-do list of successful investors.
In contrast, steady income-earning portfolios may seem tedious, but their safe and stable returns build wealth over time. High risks do not always produce high returns and can have a record of delivering a total loss!
Why is speculative trading dangerous?
Speculative trading risks capital for a big spectacular win when it works! But, like a lottery ticket, all but a few speculations are losers. That is why investors must remember that speculative trading for big fast money comes with the risk of a capital loss. And such losses can be financial disasters, so any speculative wins must be enough to cover the all but certain losses of a high-risk strategy. In sharp contrast, steady income earning portfolios can seem sleepy, even while they pile up steady safe returns! While speculation hits can be substantial short-term wins, over time, investing for the long-term performs far better. That follows the wealth-building rule, steady and secure produces far more profit as it has over the centuries of stock market history!
Speculative stock market investments come with many risks
Investors who speculate expose themselves to the unique risks of each high-risk stock and the many broad risks brought on by all speculative stocks, including:
Volatility: Speculations expose investors to unpredictable price volatility and fluctuations that produce significant rapid price gains or losses.
Market Timing: Speculative investors often attempt to time the market to buy low and sell high. However, consistent and accurate market timing is impossible, making such speculation bets on luck.
Lack of Fundamentals: Speculative stocks often lack fundamental earnings, revenue, or demonstrated growth potential, relying on hype, speculation, and sentiment rather than facts.
Liquidity Risk: Speculative stocks often have low or no trading volumes, so buying or selling larger positions can significantly move the price. That can put the investor's money into the promotors' pocket.
Event Risk: Speculative investments can react to external events such as regulatory changes, industry disruptions, or geopolitical tensions to produce rapid price changes with more uncertainty.
Leverage: Investors borrowing margin funds amplify speculative gains as they increase the loss potential if the price moves against them.
Speculative Bubbles: Excessive hype and investment frenzy create overvalued market bubbles that burst, leaving investors with major losses.
Single Stock Risk: Speculative investors in one or a few high-risk stocks risk overexposure to underperformance or adverse events.
Information Asymmetry: Speculative investments with limited public information give insiders and institutional investors advantages.
Psychological Bias: Speculative investments and psychological biases like overconfidence, fear of missing out (FOMO), or a herd mentality can lead to irrational loss-producing decisions.
Investors must conduct thorough research and seek advice when needed to understand and manage speculative investment risks.
The speculative trading choice
We will first discuss speculation, an aggressive trading strategy, as a choice and the risks as well as the returns from this approach to stock markets. Then we take a look at the possible consequences when failures happen and the lessons that failures teach.
While we cover stock market speculation strategies, we must also consider how superior investors think about and manage risk. That thinking and risk management change with each of the 3 basic stock market approaches, investing, trading, and speculating. Most often, the highest risks fall to the speculating strategies. And while speculation risks can be higher, the huge and possibly fast returns from successful speculations will always be a great attraction.
But speculation is a choice and will always remain a choice. There is no requirement to buy any speculative stock or consider it part of a normal or typical stock market investing. That means there is no need to include any speculative investment or trade in a stock market in investment portfolio.
In fact, it is best to consider speculating is a specialty part of stock market investing. And most people do not speculate and in fact avoid speculating. And for someone new to stock markets and investing, speculating is not the place to begin learning about wealth-building, investing and investments. First, learn the basics and gain experience by successfully building an investment portfolio before you consider any speculative investment.
Playing speculations and the risks of failure
By looking at examples of speculation failures we can learn the high costs and loss of capital that are possible. It can seem ironic, but speculation success and failures can both serve to improve markets as well as the skills and performance of an individual investor.
But for most people, the way to improve your investing performance is by avoiding the costly experience of making bad speculative decisions. So it helps to know the risks of speculations. And, most often, an informed investor will find themselves better off by giving speculations a pass. That will keep your money and make it available to go to work for you earning a return from a productive investment.
But the attraction of speculations are clear – those huge and possibly fast payoffs! Investors can speculate on any company from an idea or concept stock, a tiny startup that could disrupt an industry, or a large established enterprise. In most cases, the big risks and huge potential gains are most extreme among the startup and emerging junior companies.
Although risks can complicate those spectacular returns, pursuing fast money plays can be very exciting! In contrast, income portfolios offer boring, safe returns! Still, when comparing the results of long-term wealth building, investing beats speculations over time, every time! High risks do not always produce high returns and can produce total loss!
There is another way speculation failures improve our investment performance. Failures, when they tach us something useful, can change our thinking and behavior for the better. That can make a bad stock market experience into a valuable lesson that helps us learn about markets and improve our future investment results. And helps us to develop the thinking and behavior of a superior investor.
Speculations are not income earners
Speculations are not income-earning investments. They may prove to be great trades or very high-risk gambles but most have no or a limited ability to produce income. As such they are not investments which pay the investor to own them. At least that is the White Top Investor approach to investing.
But while speculations do not pay, they offer the possibility of much higher returns, much faster, than investments. Along with the possibility of high returns, most speculations come with higher risks than investments do. Those risks can be modest or extreme. But as always risks can be understood and managed. And the better speculators develop good risk assessment and management skills.
The highest risk speculations have the possibility of a total investment loss. However, most often, that high potential for loss is not offset by a high potential reward. That is a very critical point. And beginning investors should be aware so they can avoid the extreme risk trap.
Unfortunately, many cons lurk under the cover of offering speculative investments. They all set money traps the seek to ripoff investors who suffer a total investment loss. To protect yourself, any beginner should never consider or have anything to do with any speculative investing play.
A key point, increased risk does not directly tie to higher rewards. Risk and reward are associated but do not directly offset one another. Media give disproportionate amounts of attention to trading and speculating. Unfortunately, that noise and uninformed commentary can mislead new investors. All investors must develop the ability to filter media noise.
Extreme speculation risks returns and failures
When considering speculating there are many that do work. I have had great success with speculations, but that came with lots of experience, time and knowledge. Anyone interested can do the same. But it does takes considerable effort and time. And the greatest lesson learned from my speculation success is that risk avoidance is a powerful investment skill.
For that reason, I do my best to get investors, traders, and speculators to keep risk avoidance at the top of their money making checklist. The applies in particular at the most extreme end of all high-risk stock market strategies. In most cases, speculation can cross the line into gambling when you do not know what you are doing. In fact, in legitimate casinos, the gaming odds can be considerably better than among the more extreme speculative plays.
But speculations can also be legitimate money making opportunities. For example, year in and out, the junior mineral explorers are the largest speculative stock group in Canada while in the U.S. the Over The Counter (OTC) Market holds the dominant number of speculative plays. In the, Oh Canada and our one place to trade lesson, the Canadian markets including the TSX Venture Exchange were discussed. In the, Sorting through the other American markets post, we discussed the OTC Market.
Like other enterprises, there are both legitimate and shady undertakings in the investing world and more so in the speculative end of the markets. A disproportional amount of both manipulation and outright fraud occurs among speculative stocks.
Still, there are also legitimate and real emerging companies, excellent discoveries and and huge investment winners! Enough big winning plays happen to keep investors coming back hoping to catch the next big one!
Should you be tempted, before you get anywhere near this high-risk jungle, get help. Have an experienced, knowledgeable, and honest guide. But better yet, in my opinion, for most people, your financial security will be best served by simply staying completely away.
Common speculative approaches:
Trading on steroids
Rip Van Winkle trades
Covering these speculative trades is an extension of our trading discussion. We first discussed, Trading: an aggressive play and then momentum investing as methods of seeking bigger gains, faster. Now with speculating we look at the most aggressive and risky approach to trading.
Trading on steroids
Trading on steroids essentially means buying stock as it rockets up to ever higher prices on increasing volume. These are buying frenzies of raw greed as we race to get in at ever higher prices. The ride can be exhilarating but the risk is the deal may blow up or amount to nothing which vaporizes the opportunity along with our money!
Using this approach, it is best to waits for the wild run to start before buying. However, not being in at the bottom means missing the biggest gains. But on the plus side, it also means not being stuck with a dead money investment that never moves.
Like any trading, the most important skill remains to get out while there are still buyers willing to pay a higher price. Most especially junior exploration speculations frequently come to a rapid and losing end once the buying frenzy passes.
Rip Van Winkle trades
Rip Van Winkle trades involve buying many junior speculations and waiting for them to move. Speculators using this approach sit on investments in many dormant penny stocks. They hope for a few good ones among those they pick. When it works, the overall payoff can be a handsome return on the total capital put at risk. For these so inclined the long wait and research needed make the long odds worthwhile.
When such sleeping stocks do wake up the returns can run to multiple hundreds of percent! Those are the happy stories; but most go nowhere fast and are simply dead money. Even the majority that do move quickly flame out but a few do go from pennies to dollars.
In extreme bull markets riding speculative stocks can produce phenomenal gains but always come with very phenomenal risk. Prices move on news, rumor, or simply lies. News or rumor of a discovery, major business, political or environmental event can trigger huge and fast price movements as more buyers pile in.
Pennies to dollars
Buying a position in the stock of an affected company before such news can turn pennies into dollars. Then, once the story breaks, the action gets fast and furious and can make a considerable return for those with a good knowledge of the company, opportunity and the market. Knowledgeable people with their homework done can do very well. But is does require the investor to pay close attention to the market. Not a beginner play.
In Canadian junior resource penny stocks, there are many way to play the speculation game. That can be made to work for an experienced investor that makes the effort, is willing to build the knowledge and has the time to play. However, it takes considerable time, effort, and knowledge to learn. Beginners stay away. You need an escort here.
Speculators accept big risks pursuing fast spectacular returns
Most investors avoid speculations and the associated risks. However, awareness of speculations and risks helps you understand this aspect of stock market investing. Awareness of the risks helps you decide if, when and how you may speculate on the opportunity to seize a huge gain. By better understanding the risks of this aggressive strategy, you can decide when it may work and when to avoid speculation.
Speculation complications trade risks for spectacular returns exposed to high risks. The complications come because there is plenty you have to know including the potential of huge losses. And that can get very complicated.
How complicated? To profit from speculation you need the market as well as the specific stock and the timing to be right. That is a big ask. But all markets have seasons and patterns. As well, local, regional, and global events can have a significant market impact. And when is comes to seasons, as an example, resource industries fall in and out of favor and can be considered an unfavorable sector for years.
Profitable speculation needs you to understand the above circumstances. Of greatest importance, should you decide to play, you must also buy well. Doing that in thin specialty markets is a learned skill. To miss this point and buy poorly jinxes any possibility of large profits. You must never pay too much!
Finally, you must know when it is time to leave. And you can not be the last one at the party but sell while willing buyers can be found. That means those late to leave get locked in a money trap! Or can not get out with the best gains.
Experienced speculators always leave while willing buyers continue to arrive. So for money making opportunities, speculations can be attractive. But speculating for big returns always gets complicated. In the right circumstances the correct, timely decisions, can make big money fast. As always, looking into the future remains the foggy part.
However, with speculations, there is another rub! Even when a speculation delivers a great return, at the end of the play, you are sitting on cash. You had to sell to take your profit so you must find another speculation to keep the returns coming. Doing that well with consistency is a huge challenge. And market seasons have a big influence on speculative opportunities.
Speculating or an accidental investor?
Miss any of the above points on speculating and you could become an ‘accidental investor’. That is someone who speculated but missed the last bus at the end of the party and can’t sell at a profit. They then claim to be they are investing for the long term! But caught in a money trap, their special situation is that the speculation did not work for them and they are poorer. Some get wiser, others not so much.
Failed speculations are never investments. Far worst, a failed speculation kills money. Holding a failed speculation ties up capital in a dead position unable to earn profit. They may never see any return or even any capital. That’s a dud. When speculation turns out to be a dud, experienced players take their loss and move on.
For years I kept evidence of a missed speculation exit on my portfolio statement as a reminder, don't make that mistake again! Experienced speculators take their loss, get back what capital they can. Doing that allows them to move on and play another day. Don’t hide behind the thought that speculating for big returns gets complicated. When you realize you have a dud, get out!
No anti-speculation ranting!
The inconsistency of speculative returns is why the steady returns of an investing strategy can pass the overall long-term performance of a speculation strategy. This is not a blanket condemnation of speculation, I have enjoyed stunning returns on speculations! You can too.
However, only speculate when the timing of the market as well as the sector and stock are right. you have to know what you are doing, the returns are not steady, dependable, or always available. That is why investing produces far better returns over time.
But, when stars line up, speculative stocks produce fantastic profits! It is a legitimate and useful activity. In fact it is a critical part of the capital market function. Speculation adds liquidity. And when the timing is right, speculations can produce a nice addition to the performance of an otherwise conservative investment portfolio.
When speculating, beginners can luck out. But an active and engaged teaching mentor is the best way to learn. It is no place for a beginner to be alone. Even superior investors with no interest in speculation, benefit from knowing and being able to recognize the differences between speculation, trading, and investing.
Traders who speculate well:
1. have considerable trading knowledge and experience
2. spend time and effort developing speculative skills
3. strictly control costs, risks and limit speculative capital
Speculators monitor markets so they are aware when market direction and circumstances favor money making speculating trades. As well, the industry that interests the speculator, must be in favor. And finally, the specific stock selected must be among the speculation winners before they put any speculative capital to work.
And most times, in most markets, most sectors as well as most stocks, are not good speculations. Most times, the timing is not right, speculations play against long odds.
Should you choose to speculate, be sure to look at the players backing and managing any venture you pick. There are management and promotional groups that do it well. But there are many more that don’t. And all have a history, so look at that history. Doing that can provide big clues, but no guarantees of what to expect. Often, winners win again and again but not losers.
Knowing the players behind a venture can significantly change the odds in your favor. Most particularly, in the resource sector that knowledge of management and their history can help you judge if you should speculate in that venture.
Specialty or resource speculators:
1. know the resource, business, or investment specialty
2. know the resource or specialty market
3. know the relevant infrastructure
Canada offers the leading market to fund new and emerging resource companies. Canada also has thousands of knowledgeable market players willing to consider financing such ventures. Still, they only buy in when the stars line up and the timing works for them. The timing cycles for mineral producers and resource startups and producers are very long and complex. But anyone interested can learn them as a part of understanding markets.
Resources sectors are always a world play and there are alternative markets to Canada. And the US has room for giants but a limited investor base for emerging resource companies. At the same time, London has a good market but is secondary to Canada. And Australia seems content to remain focused on its domestic base of international miners. There are others but the above are the biggest.
Oil and natural gas
Also, consider oil and natural gas as resource plays. They are each different but do offer speculative opportunities. Again, use knowledge and great care here as well. Speculating for big returns gets complicated and takes lots of time and effort to do well.
You should also be aware that resource speculations go through long periods of chill. Don’t try to play a market that does not exist. When resource markets are suffering a winter chill, don’t go near them.
More recently, cryptocurrency and marijuana have ridden spectacular speculative waves. Electronic vehicles and emerging technology including AI (artificial intelligence) listings have also moved far above any justifiable price level. That introduces the last point, don’t ride speculations down as they can come back to Earth very fast!
Speculation opportunities abound
Speculation opportunities are everywhere. Speculators act when opportunity knocks. Many companies outside of the resource sector offer speculative opportunities. In fact, in all markets, there are speculative opportunities. The basic approach for all speculations remains the same. Yum yum, when you get it right! Ouch! When wrong. Losing speculations can mean a total loss.
Losing speculations can be a total loss
But losing speculation can be less than a total loss. Frequently bailing early with a small loss is best as it preserves capital. But if you get it wrong all your capital could get toasted, 100% kaput, smoked, gone. Only play if you can accept and cope with the financial, emotional, and psychological pressure and consequences without damaging your personal circumstances.
For now, this very light scratch of the speculative surface will be sufficient. A legitimate but high-risk approach to the market, speculation can produce spectacular returns under favorable circumstances. But the market has to be there; we can’t push for speculation opportunities.
Speculation opportunities happen again and again. There is no absolute formula as next time will always be somewhat different. Anyone interested has to wait until the speculation opportunities unfold, then act. For example, as this lesson is being updated, cryptocurrency and marijuana-related listings have provided a wide array of speculation opportunities.
When speculations go wrong
Losing speculations cost real money! The example of a speculation failure can be an example of any investing miss. In any case, the bottom line and your pride can take a hit when a failed investment or speculation crashes and turns capital into smoke. Speculating losers can deliver lessons including fast failure, courts kill money, never average down, sell losers, and avoid psychology games and litigation.
6 Lessons from speculation losers:
- Speculations fail fast and often completely!
- Courts are expensive places that kill money dead!
- Never average down!
- Sell a speculative loss and get the money to work!
- Psych games cost and are never good investments.
- Litigation is a high-risk gamble.
Dad taught me lessons in life!
A very long time ago, when I was a boy, a running family joke developed about my Dad’s misadventures. Dad was a creative guy, receptive to new ideas, approaches and always willing to experiment. At times some projects went spectacularly off the rails!
On such occasions, when something did not go as well as hoped, he would look at me and say, “let that be a lesson to you!” It was as if the latest disaster was arranged specifically to teach me another life lesson! I learned to, “be careful around this man”!
Passing on Dad’s lesson
After a speculation blowup turned money into smoke, I felt like my Dad must have felt on some of those occasions. So to pull some good from my disaster, I hope, this can be a lesson to you!
Once, one of my speculative technology flyers lost a major court case. Although management was confident the case was theirs to win, they didn’t! The jury said no! In the minutes after the announcement, almost 30% of the stock value evaporated! Hard to think speculation failures improve investing when my 50% upside was gone in a blink!
Speculations fail fast
When speculations don’t work, consequences are quick and costly. Losing in court also made the stock a loser. When you have a loser, it is best to take the hit, accept the loss, and move on.
Most often, when you are on the wrong side of a deal, taking that first loss is the best loss. It is the cheapest loss because most often the stock falls further. Sell to avoid the continuing decline, clean-up, and aftermath.
The technology sector has dozens of companies with shareholders still “holding on” as they wait for the big inevitable come back. That money is dead. The facts are, most of the time, the comeback does not happen for the shareholders at the time of bad news.
Speculation failures improve investing so get out what you can and get that money to work earning you returns.
In the case of technology company setbacks, the technology may very well survive. But frequently refinancing or restructuring separates or diminishes early investors from the later opportunity.
In such cases, sticking around only delivers more loss. Existing shareholder investments can get effectively wiped out. So the company and technology survive but the shareholders get financially hollowed out. Most do not come close to making back the loss let alone delivering any gain.
Even when there is no risk of going out of business, the market reaction can be overdone and usually punishes the stock. Shareholder opinions and even the facts may not matter much in such cases. You lose. The company could very well come back and develop financial strength. But, making that bet runs the risks even higher. Experience says, move on, do not let possibilities give you false hope. Get the money to work in producing investments.
Courts kill money
Lost court cases turn funds invested into dead money. The speculative bet was wrong so salvage any money you can by selling. Bring the money back to life; put it into a positive producing investment situation. Don’t speculate on a court case. Courts can produce nutty or bad business decisions.
Never average down
That is never, NEVER average down by buying more at lower prices on the theory that your average cost gets you closer to break even. The average down theory says that a much smaller recovery gets your money back.
Even when that approach works, you neutralize even more money than the initial investment in the speculation. That is putting good money after bad. Stocks take time to recover. Averaging down means you have even more under-performing capital tied up for a long time. Combined, these factors harm your overall portfolio performance.
When your speculation goes down, admit you were wrong. Sell out and get what you recover back to working for you. When you lose, better to sell out. Stop the pain. Most importantly, get that money working for you in a performing investment. The net result will improve returns.
Sell a speculative loss
If or when you speculate and have a failed speculation, sell to improve your investing. When a speculation or trading position does not work as you wanted, sell. Face facts; the speculation did not work. The only response is to sell. Get out of a loser. Recover the capital you can and move on by putting the remaining money to work in a positive position. Your speculation lottery ticket didn’t win. Accept it. Move on and make money.
Psych games lose money
Playing a psychological game with yourself in the market is very costly. Do not go through any mental gymnastics pulling a mid-stream strategy change. Do not begin to call a losing speculation a long-term investment. Do not rationalize or try to explain why you don’t or will not sell. Losers should be sold. Sell, be done with it, and take it as a speculation failure to improve your overall investing performance.
Litigation is high risk
The majority of my operating business career was managing turnaround situations. Litigation was often part of those business projects. As a result of a string of successes, I grew comfortable and confident around litigation. That gave me the false confidence that I could make investments when litigation was part of the scenario. I began thinking I could pick the winning side in business litigation cases. That was a foolish mistake.
A record of success when controlling the situation was very different from being an investor in a company involved in litigation. That is why every competent litigation lawyer advises, litigation is always a crapshoot, you can never know what a court will do or decide.
Betting on the outcome of litigation is very high risk. Trying to make money betting on the outcome of a court case is a very high-risk bet closer to buying a lottery ticket than to investing. Let’s hope my speculation failures improve investing for you so my losses become lessons that you profit from!
Failures improve stock markets
Speculations can produce big returns but high speculation risks can produce failures and possible total losses. Those investment failures can improve dynamic ever-changing stock markets. That is part of the ever-changing evolution of investing.
continually evolves while recording many successes, some failures, and a number of struggling listings. By clearing out failures, investors move on to other opportunities, and markets gain strength by leaving the weak behind. That cleansing effect of capitalism supports greater economic strength. By removing failures, the effect improves markets and the economy that enables investors to move for improved returns.
Do high risks equal high returns? Answered!
Experienced investors know the skill of managing risks and returns as they work to move returns up while lowering risks. Knowing risk and return are related but they also can be moved independently of the other. Knowing complications, risks, and shortcomings of speculation strategies may deliver spectacular but too often at higher risks.
Lesson takeaways, Speculation risks, returns, and failures:
Managing speculation risks, returns and failures are wealth-building skills used to seek high returns in speculative plays with risks including possible failures or a total capital loss.
- Speculation is a choice with risks that can be high
- Speculations do not earn income
- Speculations can be trading on steroids
- Rip Van Winkle speculations
- Speculators know the subject industry and market
- Junior resources can be great speculations
- Speculators know how to buy well
- Speculation failures teach lessons
- Speculations can be fast and complete failures!
- Courts kill investor money!
- Never average down!
- Sell losses to get money back to work!
- Don’t play mental mind games to justify bad speculations.
- Litigation is a painful costly, bad bet. Always avoid this risk!
- Failures improve stock markets by getting removed.
- Only use high-risk capital to speculate.
Other lessons related to managing speculation risks, returns, and failures
Investing buy high sell low – true or false
Headline news and stock market risk
Know the trend for market direction
Weeding your investment portfolio
Nelson Mandela touched investors
Investors can deposit and WAIT!
Being an exceptional investor builds wealth
6 Small investor advantages Warren Buffett knows
Stock market corrections – Seize the day or cover
Smart investors use smart diversification
More time in means more money out!
Winston Churchill sees opportunity in crisis
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Money Choices Grow Wealth,lesson links:
Introduction to Money Choices That Grow Wealth Lesson 1
3 Basic stock market strategies Lesson 2
Investing factors time and knowledge Lesson 3
Stock market trading strategies Lesson 4
Speculation risks, returns and failures! Lesson 5
Next course: How Investors Track Money
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Lesson Code 340.07.
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