A Four-Point Checklist Before You Speculate

Key Takeaways:

• Speculation, even if it doesn’t border on addiction, can be dangerous. 
• However, all speculation is not created equal; it’s a key part of many comprehensive investment strategies. 
• Check four boxes then seize opportunities you believe in, particularly during tumultuous times. 

Like football, crypto dominates the headlines. 

While stocks aren’t nearly as unpopular as bobsledding, you certainly don’t see as many stories about an addiction to stocks. Crypto addiction is the affliction that garners a bulk of the attention. 

Here’s a quote from the co-chair of the Los Angeles chapter of Gamblers Anonymous that sums things up, via the LA Times story I was reading: 

More attendees are joining our meetings that are addicted to the stock market or trading — we used to see this with day trading and now we’re seeing this with cryptocurrency. People think it’s sexier to be in crypto today than the market.

At day’s end, both types of addiction share significant similarities. 

It starts out innocently. Dabbling in stocks or crypto. You feel a rush when you do it. You need to keep feeling that rush. 

And/or you made money when you started. You need to make more. Or, even worse, you lost money when you started. You need to make it back. 

Speculative Investing Isn’t An Addiction. In Fact, It Can Make You A Ton Of Money 

Even if you don’t get addicted, speculation can be a problem. 

Whereas addiction impacts multiple aspects of your life, sometimes ruining it, speculation can simply, though importantly, take your eye off of your investing-related goals. 

Given the current environment – with crypto crashing and stocks getting trashed – it makes sense to take these headlines and make sense of them vis-a-vis our everyday lives as traders and investors. 

How To Speculate Aggressively, But Responsibly

Focus on your goals first. Create a diversified portfolio across various types of asset classes. Diversify within each class. Maybe you own an assortment of big tech names (e.g., Apple) alongside a basket of blue chip dividend stocks. Whatever your case, ensure you’ve covered your long-term goals, such as retirement, before speculating. 

Avoid FOMO. Just because People think it’s sexier to be in crypto today than the market, doesn’t mean you absolutely need to be there. Enough said. 

Become knowledgeable. A wealth of recent data shows more people trade and invest in cryptocurrency than understand it. The beauty of the world we live in is that, thanks to widely accessible information and education, you can learn the basics fast and hit an intermediate level of knowledge shortly thereafter. 

Knowledge matters not only for sound decision-making, but so you have no regrets. You did your due diligence. You control that part of your destiny.  Markets will do their thing. You can’t control that. 

Diversify Your Speculation. All too often we categorize speculative trading and investing as some willy-nilly entry into an asset we hope will explode to the upside. For many of us it isn’t and certainly doesn’t have to be this way. 

If you believed and invested in Amazon (AMZN) during the dot-com bust of 2000, there’s a chance you made a lot of money. Just $10,000 invested in AMZN in 2000 is worth upwards of $320,000 today. 

Source: Google Finance 

You saw a crash, but you also saw opportunity. You seized it. 

If you believe in crypto – and checked the previous three boxes on goals, FOMO, and knowledge – there’s no time like the present. That said, there’s also no need to put all of your eggs in one basket. 

Consider what US-based financial advisors said when asked where they intend to make their crypto investments in 2022. 

Source: Bitwise 

So you have choices. You can diversify within your speculation. 

Spreading speculative dollars across: 

• Publicly-traded, crypto-related equities such as Coinbase (COIN).
• Cryptocurrency mining companies, such as the top four names that emerged this month in our proprietary Trackstar data of the tickers financial professionals are searching for (see the top of this email). 
• Individual coins, ranging from big names such as Bitcoin (BTC) to an assortment of altcoins.  

A speculative portfolio based on these segments could form from this starter pack. 

Source: Google Finance 

Definitely ugly. Maybe not for the faint of heart. However, if you have done your homework and believe, this basket of stocks could be your modern day Amazon. 

The buying opportunity of a lifetime. But one you’re not staking your entire life savings on. 

The Bottom Line: Today’s headlines can be scary. From a massive crypto crash that feels as if it appeared out of nowhere. To a sustained, but volatile decline in the stock market. 

If you’ve done your homework and checked the right boxes, it might make sense to proceed with a buy when others are fearful approach. 

Let’s call this what it is – educated, not reckless speculation alongside a well thought out and ideally larger long-term plan. If you have the stomach for it, a sensible, measured approach to speculative investing probably should comprise a small portion of your portfolio.

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