Are you a speculator?
If not, you should be …
Many successful investors set aside a portion of their portfolios for speculating in the stock market. I refer to it as "fun money."
The percentage generally ranges from 1-5% of an investor's portfolio. This portion of a portfolio is used 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 …
Now, you're not going to read about how to invest this way from Warren Buffet, Martin Zweig or Benjamin Graham. However, this does not mean that speculative investing shouldn't be part of your portfolio. In fact, it should 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 the portfolio, should be to minimize risk. Just because you're speculating with this small part of your portfolio doesn't mean you want to lose money any more than with a more conservative investment.
There are several ways to speculate in the stock market. As an options strategist I like to use options as my vehicle for speculating. However, most investors generally tend to think of speculating as focusing microcap or penny stocks. These are companies usually with a market cap below $100 million.
Although these stocks should be analyzed just like other stocks in your portfolio, you need to be extra careful. We've all heard about the pump-and-dump schemes that dominate the microcap space. That's when unscrupulous investors artificially inflate the price of a stock they own in order to sell it at the higher price.
But there are legitimate opportunities that can truly enhance the overall returns of your portfolio.
That's why I want to introduce to you our newest service, The 100% Letter . My esteemed colleague and, more importantly, successful analyst Tyler Laundon has made a habit of providing his readers with rock-solid speculative picks for years. In fact, he's been so successful with midcap and microcap stocks that our boss, Ian Wyatt, asked Tyler to focus his energies on this sector to bring you the best - and safest - opportunities in this space.
Why spend your valuable time sifting through the universe of 10,000+ midcap and microcap stocks when Tyler can bring you potential returns of 100%, 200% and even 500%. He's been able to deliver such gains time and time again over the past several years.
There's another reason to trust Tyler with your speculative capital. Neophyte investors often get carried away and are unable to keep the speculative portion of their portfolios within the 1-5% range. Many often ride a speculative investment up just to ride it back down again. This is why having Tyler on your side is such an enormous asset. He gives you buy and sell signals with each recommendation so your profits won't slip away.
I've found that you typically need more discipline with speculative investments (and many investors have enough trouble maintaining discipline with their regular strategies). That's why speculation 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 maintaining strict discipline. Otherwise, your "fun money" will become "dumb money," which defeats the purpose of speculating in the first place.
One thing is certain: Tyler WILL help you to stay disciplined. Buying in tranches, keeping position sizes small, setting and following profit targets, finding the right entry point - these are all part of Tyler's arsenal for smart and safe investing when going after the big-hit winner.
If you'd like to learn more about Tyler's successful investing philosophy, don't miss his upcoming teleconference. On June 13 th at 2 pm ET, Tyler and Ian Wyatt will be presenting "The Secret to Finding 100% Winners." Attendance is limited. Click here to reserve your seat today .
Editor and Chief Options Strategist
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.