For Mark Roberts’ Use: Benjamin Graham, considered by many to be the father of value investing, once said, “The individual investor should act consistently as an investor and not as a speculator”. This quote may be simple, but it’s a powerful reminder for individuals who are still developing their investing strategies.
Speculating involves large risks, with respect to anticipating future price movements. The goal is to achieve a large, quick gain. Generally, speculators possess a great degree of expertise in a particular market, and therefore have the knowledge and experience to take huge risks. A speculator must possess a great deal of extra time (for research into their chosen sector) in order to be successful. They should also have enough resources available to them, that one bad move in the market won’t completely bankrupt them.
Investing also seeks a gain, of course. No one sets out to purposely lose money! But investors commit to a long-term strategy based on sound investment principles. An investor is also interested in purchasing assets that they believe will increase in value, but they build those assets into a balanced portfolio. At all times, the investor considers his goals, time frame, resources, and tolerance for risk.
A balanced portfolio does not guarantee a profit or protect against all investment risks. But diversification and asset allocation can indeed help investors take advantage of market upswings while controlling losses during serious downswings.
Most individuals should pursue a pattern of investing, rather than speculating. It can be tempting to buy up a “hot” stock or become emotional and sell when prices seem low. But instead, individual investors should work with an experienced financial advisor to develop a diversified portfolio of investments. Trust your investing strategy for the long haul, meet regularly with your financial advisor, and make small adjustments according to your goals and risk tolerance. But remember not to risk it all on emotional decisions, or you could face a grim picture of retirement.