legal and moral right to speculate, provided they do so reasonably, intelligently and at their own risks. Reasonable speculation is such speculation as cannot seriously or permanently affect the resources or position of the persons indulging in it. Intelligent speculation is such speculation as is indulged in only after a thorough investigation and study of the subject of the speculation. The professional speculator is in the market not for the purpose of either depressing or raising prices. He is as ready to make money on a rise as on a fall in prices. In either case he will try to ascertain what the probable tendency of the market is before he embarks in any undertaking. No speculator or clique of speculators in their senses would undertake to try to depress prices in the face of a rising market.26
From Investments and Speculation (1911) it’s easy to see free-market capitalism and less government as optimal:
Call it what you will, speculation will always be with us. Prudes may frown upon it, superficial thinkers may confuse it with the commonest forms of gambling, and sociologists may dream of the day when envy, ambition and covetousness will be a thing of the past and the human race can exist in peace without these human traits, but their agitations and outcries can no more check speculation than human ingenuity can devise a scheme to control the tides. What the blood is to the human body, speculation is to business. It is absolutely a necessary part of it. The only difference, if there is at all a difference, is in the form it assumes. What would business be without incentive? In fact incentive is all there is at the bottom of speculation. Men are willing to take risks to acquire wealth. They are willing to stake their capital upon opportunities, which appeal to their judgment. From the pioneer who heedlessly plunges into a trackless waste to find a new home with greater opportunities for the acquisition of wealth, to the modern capitalist, who, to control the trade in a given commodity, plans gigantic trusts, is a long line of speculators, as speculation is behind all their ambitions. The inventor who is, apparently, of all men the least of speculators, takes greatest speculative chances, for he uses up time and energy to shape his ideas into some form where they can be of practical use and should he fail has wasted them utterly and lost all. Illustration after illustration could be given to demonstrate how speculation in a greater of less degree enters into the material welfare of each individual. Without speculation no business could progress. It is the dynamic power behind every incentive to activity and progress. It is the desire for gain, which prompts the inception of every venture. If it is all that, then it can be readily seen how necessary speculation is. In fact, speculation in its highest form has shaped the course of history and often changed the map of the world. Intelligent speculation is no crime. It is not gambling. It is merely pitting human shrewdness against the uncertainties of the future. For that matter, life itself is a speculation in which ministers, prudes and agitators hope to avoid sickness and accident and live their allotted span of life. Between speculation and gambling there is as much difference as there is between night and day. Speculation commands the exercise of the greatest measure of acumen, where gambling trusts everything to luck and the turn of a card. Experience has demonstrated far too convincingly that wherever speculation has been leashed by the iron bonds of the law, the effect has been almost an immediate stoppage in the material progress of the country.27
And finally from Psychology of the Stock Market (1912), one year before the Federal Reserve System was established, the behavioral school comes into focus:
The psychological aspects of speculation may be considered from two points of view, equally important. One question is: “What effect do varying mental attitudes of the public have upon the course of prices?” “How is the character of the market influenced by psychological conditions?” A second consideration is: “How does the mental attitude of the individual trader affect his chances of success?” To what extent, and how, can he overcome the obstacles placed in his pathway by his own hopes and fears, his timidities and his obstinacies?28
This wisdom is clean, clear, and instantly true for those awake. These days, however, speculation is often positioned as a pejorative among the intelligentsia. While I enjoy Oliver Stone’s outsider status, his film Wall Street: Money Never Sleeps (2010) paints speculation quite differently, as his film’s main character Gordon Gecko profanes, “The mother of all evil is speculation.”29
Stone is not alone in making an enemy out of speculation. New age guru Deepak Chopra makes the sweeping generalization that “Wall Street is broken for sure because it succumbed to greed and corruption and pure speculation with no values.”
Wall Street, the phrase, can mean anything. If Chopra is talking big bank bailouts it is easy to agree with him, but pure speculation practiced honestly is far from valueless. Politicians, too, love the sport of ripping speculators, an enduring ritual. United States socialist Bernie Sanders was predictable: “I’m not much into speculation.” The character Bobby Axelrod of Billions counters Sanders: “What have I done wrong? Really? Except make money. Succeed. All these rules and regulations? Arbitrary. Chalked up by politicians for their own ends.”
Axelrod is of course a fictional, fast and loose day trader built on inside information, but his words, words uttered by many an honest man over the millennia, expose in raw form the hatred inferior minds have toward speculation and reinforce it as a worthy endeavor – at least for those disconnected from The Matrix.
Winning versus Losing
It is typical the general public equates winning in the markets with abusing the financial market system – you know the horror stories so I won’t overwhelm you. However, there are players with the utmost integrity who achieve spectacular returns year after year. Examine their beliefs and self-perceptions and you will understand what keeps them honest. But before you examine their perspectives, take a moment to consider your own.
For example, at the end of the 1990s or let’s say summer 2007 or even fall 2016 for that matter, when investors were feeling more secure financially on paper, the you-know-what hit the fan or was about to, and by the time it was over, they had lost significant money. They became angry with analysts, experts, brokers, and money managers whose advice they had guzzled down. Now they know they will not meet their investment goals or come close to the mythological retirement. They’ve religiously held on to their remaining investments hoping they will eventually turn around, but 401(k) decisions are paralyzing. They still believe indexing or buying and holding is the way to go – after all, they’ve been sold that meme for decades. But now as a final act of desperation, they give up – they rationalize winning as only dumb luck.
Still others lost even more in October 2008, but, win or lose, they enjoy the thrill in the hopes of the one trade that makes them rich. Investing gurus, stock tips, and all of that is their entertainment. Plus they love to boast about their investments – ego needs attention, after all. Yes, they are depressed and angry when they lose, but when they win it feels terrific – it’s the heroin-junkie high. Since their main goal is to invest for quick profits, they will keep doing what they’ve always done. After all, there was one time a few years ago when a tip made a nice profit they still dream about.
Stop.
There is a much better way to think: Your approach becomes objective, moving as close as you can to rational. You have enough confidence in your own decision making that you never seek out investment recommendations. You’re content to wait patiently for the right opportunity. And you’re never too proud to buy a stock making new highs, even all-time highs. For you, investing opportunities are market breakouts. Conversely, when wrong, you exit immediately, no questions asked. You view loss as an opportunity to learn, move on, and save money to play another day. Obsessing on the past is pointless. You approach trading as a business, making note of what you buy or sell and why in the same matter-of-fact way you balance your checkbook. By not personalizing
John Hill Jr.,
Louis Guenther,
G. C. Selden,
