Investing vs Speculating
What is investing and what is speculating? How is it that some people made a fortune on companies such as GameStop $GME while others lost a lot of money?
๐The difference between investing and speculating can be found in the first chapter of The Intelligent Investor of Benjamin Graham itself but we always need to remind ourselves of this difference. Because the ๐ฉ๐๐ข๐ฅ๐ฉ๐๐ฉ๐๐ค๐ฃ ๐ฉ๐ค ๐จ๐ฅ๐๐๐ช๐ก๐๐ฉ๐ ๐ค๐๐ฉ๐๐ฃ ๐๐ค๐ข๐๐จ.
๐There are different types of investors and traders. What they all have in common is that they dedicate time to ๐๐ค๐๐ฃ๐ ๐ฉ๐๐๐๐ง ๐ง๐๐จ๐๐๐ง๐๐. Of course, an enterprising investor will dedicate more time to research than a defensive investor.
๐ฐSpeculators don't do any homework or any analysis at all. They just see a trend happening and they jump on board. In other words, they are ๐๐๐ง๐ ๐ค๐ฃ๐ก๐ฎ ๐ฉ๐ค ๐๐๐ข๐๐ก๐. For example, I do a lot of arbitrage but it is always based on facts and not rumors. I will not buy shares of a company just because there are rumors that the company will be acquired. Recently, I said no to an arbitrage opportunity with over 20% spread. Aphria $APHA was being acquired by Tilray $TRLY because this sector was outside my circle of competence.
๐ฎ I invested in GameStop as a pure value play, a cigar butt stock and also with a bonus of an inevitable short squeeze. That's how I was able to make ๐ฏ๐ฏ๐ฌ๐ฌ% ๐ค๐ฃ ๐๐๐ข๐๐๐ฉ๐ค๐ฅ on average. But there were speculators still buying at $400 hoping it will reach $1000 or even $10000 (making it bigger than Berkshire Hathaway $BRK.B ). What these speculators were actually doing is hoping that someone else will buy at $500 and that this person expects someone to buy at $600. It is a never ending cycle. Unfortunately, nobody has that much money to do that and like any speculative bubble it crashed.
โ๏ธ How did I manage my investment during that speculative phase? I said that the intrinsic value of GameStop was $50 and that I started selling at $58. Why then, did I hold till $420.69? I made sure that I took maximum profits before that. I had 10X of the initial investments in profits secured before GameStop even reached $100. So, ๐๐ซ๐๐ฃ ๐๐ ๐๐ฉ ๐ฌ๐๐ฃ๐ฉ ๐ฉ๐ค ๐ฏ๐๐ง๐ค, ๐๐ฉ ๐ฌ๐ค๐ช๐ก๐ ๐จ๐ฉ๐๐ก๐ก ๐๐ ๐ข๐ฎ ๐๐๐จ๐ฉ ๐๐ฃ๐ซ๐๐จ๐ฉ๐ข๐๐ฃ๐ฉ ๐๐ซ๐๐ง ๐๐ฃ๐ ๐ฌ๐ค๐ช๐ก๐ ๐ฃ๐ค๐ฉ ๐ง๐๐จ๐ ๐๐ฃ๐ฎ ๐ค๐ ๐ฉ๐๐ ๐๐๐ฅ๐๐ฉ๐๐ก ๐ค๐ ๐ข๐ฎ ๐๐ค๐ฅ๐๐๐ง๐จ. I knew that it would keep going up because of the short squeeze. But when trading was limited and the short-sellers bought back their whole position, the whole catalyst of a short squeeze broke, meaning holding it would just be speculating.
๐ฑIt is not only with GameStop, at some point I bought Apple $AAPL during the 2016 and 2018 selloffs and it was 22% of my portfolio. I was worried about how the market will react to the earnings. Normally, a long-term fundamental ๐ซ๐๐ก๐ช๐ ๐๐ฃ๐ซ๐๐จ๐ฉ๐ค๐ง ๐จ๐๐ค๐ช๐ก๐ ๐ฃ๐ค๐ฉ ๐ฌ๐ค๐ง๐ง๐ฎ ๐๐๐ค๐ช๐ฉ ๐ฉ๐๐๐ฉ. That's when I knew that I had to take profits.
Watch the full video on YouTube:
https://www.youtube.com/watch?v=SdfwQOs-dWw&list=UUPO3uUyoXSaFWG-Ldq1mqEQ&index=1
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