The Right Way to Speculate in the Stock Market

By
A A A

Are you a speculator?

If not, you should be…

A lot of successful investors keep a portion of their portfolios for speculating in the stock market. I like to refer to it as "fun money".  The percentage generally ranges from 1-5% of an investor's portfolio.  This is the portion of a portfolio that you'd use to bet on stocks that usually have more potential than actual substance; typically this means betting on penny stocks or stocks trading on the OTC market or pink sheets.


In most cases, that's a futile endeavor…until now.

You're not going to read about speculating from Warren Buffet , Martin Zweig or Benjamin Graham. However, that does not mean that investing in a speculative manner shouldn't be part of your portfolio and shouldn't be taken just as seriously as your overall investment philosophy.

In fact, a sound philosophy should be developed for the "fun money" portion as well.

The goal, just as with the larger portion of your portfolio, should be to minimize risk. Just because you are speculating with this small part of your portfolio doesn't mean you want to lose the money any more than you normally would with a more conservative investment.

There are many ways to speculate in the stock market. As an options strategist I like to use options as my vehicle for speculating. In general, however, most investors tend to think of speculating as focusing on stocks at the low range of the micro-cap world, or penny stocks - companies usually trading for a market cap less than $100 million.  Although these stocks should be analyzed just like other stocks in your portfolio there are several particular areas you really need to review with a fine-toothed comb…because there is a lot of complete garbage out there.

We've all heard about the pump and dump schemes that dominate the micro-cap space. But there are legitimate opportunities that can truly enhance the overall returns of your portfolio.

And that's why I want to introduce you to our service, The 100% Letter . Our esteemed and highly successful analyst Tyler Laundon has been giving away speculative picks with great success to his readers for years. Tyler has been so successful with mirco-cap stocks that our founder and Chief Investment Strategist Ian Wyatt has decided to allow him to focus all his energy on the micro-cap sector. Why spend an exorbitant amount of time sifting through the universe of 10,000+ micro-cap stocks when Tyler can bring you potential returns of 100%, 200% even 500%?

In most cases, investors should avoid speculating.  Typically, the neophyte investor gets carried away and is unable to keep the speculative portion of the portfolio below 1-5% and sell when the speculative portion rises well above this point (assuming you adopt the 1-5% strategy).  Investors often ride a speculative investment up only to ride it back down again.  Again, this is why having Tyler on your side is such an enormous asset. He will give you signals when to buy and sell with each and every investment recommendation.

There is often more discipline involved in speculation than there is with regular investing. Many investors have enough trouble maintaining discipline with their regular strategies.  So, this is only for the bold, disciplined, and cautious investor.

It almost sounds like a paradox, being disciplined to be speculative, but it's impossible to be successful at speculation without discipline.  Otherwise, your "fun money" will be "dumb money," which defeats the whole purpose of allocating a portion of your portfolio to speculation in the first place.  You might as well just cash out 1-5% of your portfolio a year and burn the money if you aren't going to follow a disciplined approach.

But one thing is certain: Tyler WILL help you to stay disciplined.

If you would like to learn more about Tyler's successful investment philosophy you will not want to miss his upcoming teleconference. On February 20 at 2 p.m. ET, Tyler and fellow editor Chris Preston will present " 100% Returns: A Strategy for Consistent Winners ".



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks:

Wyatt Investment Research

Wyatt Investment Research

More from Wyatt Investment Research:

Related Videos

Stocks

Referenced

Most Active by Volume

69,589,453
  • $17.71 ▲ 0.51%
67,826,144
  • $92.90 ▼ 14.34%
43,457,267
  • $7.15 ▲ 5.61%
41,474,187
  • $112.94 ▲ 1.04%
39,656,564
  • $7.45 ▲ 4.78%
38,604,858
  • $15.49 ▲ 9.01%
34,600,059
  • $25.71 ▲ 0.35%
32,095,432
  • $104.58 ▲ 0.25%
As of 12/22/2014, 04:15 PM


Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com