Are You an Investor or a Gambler?
Due to the rise of the coronavirus pandemic in 2020, most people were barricaded in their homes and had plenty of free-time on their hands. Although unemployment ran rampant, food shortages elevated, and managing household financial obligations were major concerns, speculation in stocks became a phenomenon as well.
It was so easy for many people - as 2021 approached - to scratch the speculation itch right from their mobile phones as a whole new generation of newbie investors broke out in a trading frenzy, into things like: cryptocurrencies, meme stocks, NFTs, and options trading.
What Are Meme Stocks?
Meme-stocks GameStop and AMC Entertainment were trading at $5.73 and $4.92 per share, respectively, on April 1, 2020. As of this article, GameStop was trading at $162.75 (a 2744% return) and AMC at $33.68 (a 584% return) since last April. Both of these companies are considered meme stocks - in that they are quite risky, prone to wild and unpredictable price swings based on internet message rumors, with little regards for valuations and fundamentals.
You may think they are investments but in reality, they are speculations. Too many people don’t know what they are buying and are jumping in because they view it as fast, easy money and they are swept up in the lure of a rapidly rising price.
For instance, I’m not one to explain to investors why many believe that bitcoin at $46,000 is a bubble or why others think $46,000 is a steal because the cryptocurrency may reach $100,000 and is the next big thing. There is a huge difference between real investing and speculating out there.
Investing is a Reliable Strategy
Investing is a reliable way for anyone with patience and discipline to build and preserve wealth over time. Speculating typically creates wealth only for lucky lottery winners, casino owners, and a lucky few others.
I believe most anyone with realistic expectations should be able to achieve their financial goals through true prudent investing and simply do not need to find the next big thing to succeed.
Reminding people of the differences between investing and speculating helps them remember why they chose to be investors, reject speculation and recommit to their investment policies, and it also prevents them from placing bets with their life savings.
At times, losing money is not the worst thing that can happen. But what’s worse is to make a lot of money fast. Once someone gets in and places a successful bet at a low price, they like it. They often take credit for it rather than acknowledging that luck might have played a role.
Welcome to Vegas
When that happens, they believe they can easily do it again, and they are far more likely to seek out and place another bet. When they make the next one, it is usually with more money. It is like betting on horses or plowing more money back into the slot machines.
Las Vegas is built on this dynamic, and it is another sign that speculating in stock/financial markets is more like gambling than prudent investing.
Furthermore, it’s unnecessary for financial success. Yet some will want to do it anyway. It could be interesting and potentially lucrative, but the temptations are also dangerous if not managed well. Be an investor. You'll have a better chance at reaching your ultimate goals.