But what exactly is involved in having the right temperament to invest successfully?
George Sisti, a fellow Certified Financial Planner and Registered Investment Advisor, has a good idea of what’s NOT involved. He says there’s a big difference between thinking and investing long-term, like an investor, and just angling for short-term gain, like a speculator.
In a recent MarketWatch column, he spelled out eight signs that you may have become a speculator instead of an investor.
Are you guilty as charged?
Here are a few of the signs, excerpted from Sisti’s column, that we’ve all run across. If you’ve kept your ears open at a recent cocktail party, we bet you’ll recognize one or two from this list. (For all eight signs, click here to read George’s entire column).
“If you scour the media or the Internet for market-beating investment ideas, you’re a speculator. … Most media types giving investment advice are journalists or self promoters—hardly good sources for the kind of guidance investors desperately need.”
“If you try to time the market or own a market-timing program, you’re a speculator.”
“If you invest in individual securities that you think will outperform the market, you’re a speculator. … Adding individual stocks to your portfolio adds unnecessary individual company risk.”
“If you invest for short-term gain, you’re a speculator. Historically, stocks have been good long-term investments. But investors must be patient. The global economy is cyclical and repeatedly moves through a series of expansions and contractions. Get used to it.”
“If you invest in an asset because it has performed well in the past, you’re a speculator. Past performance tells us nothing about
future returns; as I’m sure you know by now.”
“If you invest in hedge funds, you’re a speculator. The performance of most hedge funds has been disappointing—as it must be with their excessive fees. Recently we’ve seen pictures of FBI agents leading hedge-fund managers out of their homes and offices in handcuffs because they couldn’t generate market-beating performance without engaging in illegal insider trading.”
“Do you have a prudent, long-term investment strategy based on the lessons of history? Or are you taking a gamble with a speculative investment strategy based on someone’s conjectures about the future? Wall Street will offer you the latter, along with expensive investments and self-serving advice.”