The Desire To Speculate
It is said that the desire to speculate is very strong in the American
people. That is why our country has made greater progress than any other
country in the world, because progress is the result of speculation. We
are not referring merely to stock speculations, but to the word in its
broadest sense. Every new undertaking is a speculation.
An inventor speculates on what he is going to invent. Often such
peculations result in losses, because many inventors, or
would-be-inventors, never accomplish very much. They spend their money,
time, and efforts, and probably live years in poverty, and then if the
invention is not profitable, they are heavy losers. Many inventors spend
the best years of their lives in poverty and never succeed. We hear a
great deal about some of those who do succeed, but very little about
those who fail--those whose speculations were unsuccessful--except when
somebody accuses them of being crooks because they solicited money for
the promotion of their inventions and did not succeed.
It is the same thing with every new business. It is purely a
speculation. It is a common saying that 95% of commercial undertakings
fail. We do not know that that statement is correct, but there is no
question but that the number of failures is very great, which shows the
great risk in going into a new undertaking. It is far greater than the
risk involved in stock speculating when it is done in accordance with
the advice given in this book.
Yet, there would be no progress without speculating of this kind. If
those entering a new business would make a careful study of the venture
before entering it, and would exercise greater care and judgment in
conducting it, the number of failures would be very much less. The same
thing is true of stock speculating. The failures in stock speculating
are caused mainly by ignorance and greediness. Many people who would be
satisfied with a fair return on their money in a business enterprise,
think they ought to make a 100% profit in a few weeks in stock
There is something about stock speculation that appeals to the
greediness and pure gambling instincts of people. In the chapter on
Manipulation, we have told you how stock prices are put up and down.
Some outsider accidentally buys one of these stocks just before the
price starts up. In thirty days he has made several hundred per cent
profit. He does not realize that it was purely accidental as far as he
was concerned, and he tries to do the same thing again, and loses all of
his profits and probably all of his capital as well.
A stock gambler (we use the word "gambler" to refer to a man who
operates ignorantly) is watching a large number of extremely speculative
stocks and suddenly notices one that takes a big jump in price. Then he
says to himself, "If I only had bought that stock on a ten-point margin,
I would have made several hundred per cent profit." He picks out another
stock that some one tells him is going to do equally as well. He buys as
much of it as he can and puts up all the money he has as a margin, but
the price doesn't go up. Perhaps the price goes down and he loses his
margin; but, it may remain almost stationary for a long period,
sometimes for a year or more, and during all of this time, this man is
worrying for fear he will lose his money. If he does not lose his money,
it is tied up for a long time where he cannot use it to take advantage
of real opportunities that come his way.
It does not pay to take big risks. That is true in stock speculating the
same as in any other undertaking. Most speculators are keeping their
minds all the time on the possibilities of profit and not thinking about
the possibilities of losing.
If you want to be successful in stock speculating, there is one thing
you must learn to do, and that is never to think about the big profits
you might have made if you had bought such and such a stock, because the
probabilities are you could not have afforded to take the necessary risk
in buying that stock.
Of course, after it is all over, it may look to you as though the buying
of that stock was a sure thing, but the buying of such stocks is never a
sure thing. The risk always exists. There is an old saying, and we
believe a very true one, that a man who speculates with the idea of
getting rich quickly loses all his money quickly, but that the man who
speculates with the idea of making a fair return on his money usually
In our advice to our clients, we seldom recommend highly speculative
stocks, because we consider the avoidance of loss more important than
the making of profits. You may object to that statement, because you
speculate to make profits, and not for the purpose of avoiding losses.
Nevertheless, if you are careful in keeping your losses down to a
minimum, your profits are likely to be very liberal. Any trader who
trades for any great length of time is likely to make large profits
sometimes, and yet the majority of them have greater losses than
profits. It is said that more than 80% of all margin traders lose; but
we do not consider that an argument against trading on margin, because
these losses are mostly due to ignorance, greediness, and the taking of
too great chances.
Do not suppress your desire to speculate. All progress would stop if
people did not speculate. But do not speculate in stocks nor in anything
else without any knowledge of what you are doing, and try to use as
much good judgment and care as possible in all of your transactions. If
you do not know what to do, get advice from someone who is supposed to
know and who is not interested in having you buy or sell. Stock
speculating with safety is possible for those who make the effort to be
guided by correct principles.