Sunday, December 18, 2005

Speculation Involves An Educated Guess

You can be right on the event, and wrong on the time, and still lose money.


You just shorted that stock. Your research showed what you believe are flaws in their business plan, reality will catch up with them - but
inevitable does not necessarily imply immediate.


The stock does not know you bought it. Their business plan may have been flawed for a long time; the stock may continue to go up.


It seems inevitable that the stock will tank, sometime. It seems inevitable that those who play the stock's fall properly will make money. What is not inevitable is that it will happen now, inevitable is not necessarily immediate. Just because you are ready does not change reality.


This is the basis for money management. In investments you can use stop losses and small commitments to correlated investments. "Get smaller" if your bank roll is shrinking, if you want to survive.


The temptation is to play too big. Play too big and you may end up just watching the action. You can do very well waiting until you know there is a profit to be made, this may involve missing the early moves.


You can also do well bring too early, as long as you do not use leverage.


You can also do well combining the techniques, a no leverage small early investment, a bit of leverage once the trend is established. That bit of no leverage speculation helps you to track the market. Once the trend has run; - de-leverage and start to get small again.

You can't win if you don't play.
You can't play if you run out of money.

inevitable does not imply immediate.

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