Saturday, February 04, 2006

Speculate In What You Know

For years Warren Buffet avoided investing in technology stocks.

There is plenty of money to be made in areas you understand. If you buy diamonds on a street corner you will probably end up with cut glass. That gold brick you are offered is probably a lead bar with a thin plate of gold, or maybe even paint.

That leaves you with two choices.

Invest in what you know -- or learn about what you want to speculate in.

This brings up an obvious question, what about expert advice?

If you already are conversant in the asset class, expert advice can help point out new opportunities you might have missed.

Even experts will be wrong - if you do not know why you are in a speculation - you won't know the right time to close your position.

Perhaps you have done well on the long side of stocks, but now feel the short side may make sense. You have some basic skills and knowledge, study to fill in your knowledge.

If however you see opportunity in gold, soft commodities, or currencies and have not played futures markets before -- don't.

At least don't play them until you read some books and understand them. Always read the book before you play the speculation.

When you enter new markets keep your size small, increase size slowly, studying the whole time.

First and foremost - speculate in what you know.

Later learn some tools in other areas.

Don't make speculations in areas you don't understand.

You can't win if you don't play.
You can't play if you lose your chips.

Stick with games you know, be very careful about entering new ones.


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