Red Pine on investors versus speculators
By The Andersens
We find that most people know little about investing.
We also find that very few investors know themselves and are self-critical. Knowing who you are – investor or speculator – is essential.
Which one are you?
Investor: takes action based on a thorough analysis of facts and relevant information.
Speculator: takes action based on a guess [or gamble] that is not grounded in facts or evidence.
Emotions run high in the markets. It’s easy to do the wrong thing, to speculate rather than invest. Many speculators classify themselves as investors because they don’t understand the difference.
We find it useful to have a checklist to remind us to be investors rather than speculators.
|Speculator Traits||Investor Traits|
|• No direction or “roadmap”||• A clearly-defined “game plan”|
|• Impatient and overeager for profits||• Knows that success requires intelligent effort|
|• Reluctant to admit mistakes and accept losses||• Knows mistakes happen and moves on|
|• Easily influenced by generalizations||• Knows that specifics are what matter|
|• Swings to extremes of optimism or pessimism||• Thinks rationally and acts calmly|
|• Gets entangled in volatility||• Takes advantage of volatility|
|• Pays little attention to value/growth metrics||• Pays strict attention to value/growth metrics|
Most investors end up with mediocre-to-poor returns over time because in reality they operate and act more like speculators than like investors.
Ben Graham: Investors judge the market price by established standards of value while speculators judge their standards of value based on the market price.
Don’t be a speculator or gambler. Know what you’re doing and the reasons why.