Even though I am a long term investor,I do not see anything wrong in speculation provided you adhere to the following principles to safe guard your investment.
. (i) Pencil down maximum of 5 solid highly capitalised stocks
(ii) Aim at the lowest fair value to buy into
(iii) Spend more time observing than buying or selling. You should not trade more than 3 times in 12 calendar months.
(iv) Be contented to take profit as from 20% upwards and do not be greedy to hold the stock for too long.
(v) Be aware that if you miss a buy opportunity,there is always another opportunity at a later date on that counter or some other one you have pencilled down.
In practice In African market I invest in (Nigeria,Ghana,Nairobi,Botswana) except dynamic South Africa,I do not speculate,I only buy at a fair discounted price after a careful research for the mere fact that
(i) African Market are not as violatile as the advanced markets
(ii) I do not feel it is safe to leave cash in brokers accounts
On the contrary,in overseas market like US,China (Hong Kong) that are very dynamic and violatile,it will be a big mistake or waste of time if one do not take profits occassionally in the upswing of a stock and re-enter the same stock at a lower price. Also your funds are transparent and safe.
What I discourage people is trading frequently without any pattern. You will gain big and also loose big so the net effect most often is a loss. The problem is what you gain big,people will know,but when you loose big,you will keep it to yourself. In essence you do not tell other investors the whole truth. There are many examples of such gurus in this forum.
Investing in stocks itself is a creative risk,but it is too risky if you trade frequently in any market condition because you cannot be 100% accurate in this business.
So speculating in stocks is a good strategy if it is done intelligently. But stocks speculation should not be synonymous with frequent trading. Afterall buying into any counter is like speculating since you are buying in anticipation of future growth or better returns from that counter.
Best Regards,
Young,
Nigeria
AFRICAN INVESTOR
The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .