Why should market speculation be profitable?
In this article I will explain why market speculation should be profitable.
Disclaimer: I have never owned a stock outside of my retirement accounts and am therefor basing this theory entirely off of intuition and logical analysis. I have never been a day-trader. Furthermore, the following analysis assumes that you make your investment choices based on logic, not emotion.
Caution: Invest at your own risk!
Markets have character.
Identifying market trends based on momentum or cyclical patterns is inevitable for all investors. No one ever bought anything without expectation. Communication of these expectations is what gives a market character. Example: Bob O’Brien points out that “May sell-offs on Wall Street typically turn into big recoveries in the month of June.” Anyone privy to this knowledge is more likely to sell before May, and more likely purchase sometime near the end of May. This selling before May increases the likelihood of the very May sell-off that we expected, and the purchasing near the end of may increases the likelihood of the June recovery.
Education promotes profitability.
The fundamental difference between Buyer A and Buyer B is their expectations which are a direct result of their education. If Buyer A knows nothing of the trend of the market, he is more likely to be surprised by a sell-off. If Buyer B has been educated by Mr Bob O’Brien, he is less likely to be surprised by a May sell-off and is more likely to be prepared to take profitable action.
What should I do?
First, I don’t recommend day-trading for any beginner investors, although I’ll likely try it soon for the experience. However, I am suggesting that there are significant profits to be made in speculation as opposed to simply dollar-cost-averaging dividend stocks, mutual funds or index funds.
Specialization. You don’t need to make money as a baker today and a candlestick maker tomorrow. You need only be good at one thing. Find a niche. While everyone else is distracted BP oil spills and the World Cup, educate yourself in some unrelated niche. It may be less exciting, but you’re more likely to find a winner before the distracted world is privy to your gold mine.
Disagreement and education is welcome – please comment!
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