Why constant stock-market gambles never pay off

Whether stock markets are flying high, bottomed out or remain constant, there are always opportunities for speculators. While stock markets can be overoptimistic they can also be overcautious which can create potentially lucrative buying opportunities. Investment forums and websites are littered with the names of successful investors who came from nothing to be multimillionaires.

While we always hear of the shares they made money from, what about the duds, the ones which cost them?

Gamblers never win

As with professional gamblers who use the services of bookmakers, there is only one winner, the bookie. The same is true with those who constantly speculate and gamble on the next success story. Yes, they may find four or five shares on the trot which do well, making them huge amounts of money. However, if they continue to take extreme risks then eventually they will be caught out.

Those who are successful on the stock market know when to rein in the gambles, when to diversify their portfolio and when to count their profits. They don’t see a never-ending line of shares which doubled, quadrupled and more.

Caught up in the moment

If you have spotted a share which is seriously undervalued and double, treble or quadruple your money, your ego tells you that everything you touch turns to gold. You may become a little blasé, complacent and start to believe your own hype and that the market is wrong on every stock. This is the moment when speculators are at their most exposed, the moment when they can’t see past their own nose and start to disbelieve the market.

If you have an eye for speculative investments it can be extremely difficult to switch off this side of your investment philosophy. However, if you want to retain a large percentage of your profits and live to fight another day, you will need to learn.

Diversification is the key

When is enough enough? When do you stop taking the gambles? When do you start to look a little longer term and perhaps start to plan for your retirement? There is nothing wrong in retaining a percentage of your portfolio for more speculative gambles but don’t bet the house. Be sensible, be cautious and ignore that devil on your shoulder encouraging you to go all in. At some point, whether it is the stock market turning, an unexpected announcement from the company or simply bad timing, you will be caught out.

I was tempted to suggest that as you get older your speculative tendencies will start to weaken but this is not necessarily the case. Yes, experience can impact the way in which you invest your funds and the type of risks you take, but it is not all about age. The truth is that if you want to stroke your own ego then you will follow a more speculative path than those who are happy to count their blessings and start to diversify their investments.

Summary

Once an investor begins to believe their own hype over the combined impact of the stock market, and other investors, this is the beginning of the end. They believe that everything they touch will turn to gold, everybody else is wrong and their investments will come right in the end. Many will hold on until the final throes before the speculative investment runs out of funds and experiences death by a 1000 cuts. Don’t be that person!

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