The Stealthy Sisters of Spin and Speculation (Part 3)

Something feels wrong to me about the part-time futures day trader Mr. Know It All. Hobbies are part-time activities and I believe this level of commitment usually fares poorly in the markets. Why bother, then? I suspect many people who dabble in trading do not realize this is what they are actually doing.

Consistent losses belong in the gambling/speculation category. Whether it be the lottery, slot machines, Blackjack, etc., repeated small losses are the norm rather than the exception. Sure I have the chance of winning huge but the odds are against me and the law of large numbers says if I play enough then I will go to zero.

I feel my last blog post went off on a tangent and completely rehashed an earlier one. Perhaps there is something slightly new here in terms of flushing out speculation, though.

I think the problem with general discussion/debate about the markets is a failure to understand where participants are coming from. A speculator has completely different motives than someone looking to make consistent money. Speculation cannot be used to make consistent money in the markets. I think everyone would consider that idea to be foolhardy: it’s nothing more than gambling. We therefore have to pay close attention to what is actionable (responsible trading/investing) vs. what is spin (speculation) and that is where critical thinking can truly be useful.

This is a huge thesis for me and one I should probably develop further.

One complicating factor is that speculation can arguably be okay in small doses. Perhaps Mr. Know It All has 70% of his total net worth with an investment adviser and a couple checking accounts for daily expenses. He may then have some money leftover that he can use for speculative purposes (e.g. day trading futures, a lottery ticket every now and then, the occasional visit to MGM Grand, etc.). Many people still believe the ancient Greek ideal “everything in moderation.” Similar to rewarding a healthy, disciplined diet with a small serving of junk food, a small amount of speculation is probably okay if the overall portfolio is healthy.