When Is Investing Really Just Speculation?

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Published by Robert W. Huntley, CFP®, CHFC®

Recently, my wife and I were leaving an event in downtown Austin, TX waiting at the valet station for our car. While standing there, we were chatting with the valet attendant and hearing about his final year of school and his plans for buying a house and splitting time between Austin and Chicago after graduating.

He was an avid poker player and had recently gotten involved in investing recently. He was very enthusiastic about his holdings in a particularly trendy technology asset that’s been in the news a lot lately. It was still a very “hot market” I believe were his words.

I won’t mention specific names due to regulatory requirements, and really, it’s not necessary for the point I want to make here.

The point of this story is this; I suddenly realized I was hearing indirect investment recommendations from my 22-year-old parking valet.

That’s also the moment I knew it was official. This is almost certainly going to end badly.

We’ve all heard the stories of stock tips being passed around in 1929 by the shoe shine guys. Everyone was the smartest guy in the room.

These things never end well. Mania’s are a phenomenon that just keeps repeating. It doesn’t matter how many times we’ve seen the movie, we still get caught up in the momentum of the quick returns and stories of newly minted ‘billionaires”.

You have probably heard of the “Tulip Mania” from the 17th Century. Not much has been written about exactly how wide-spread that ‘mania’ really was, but no one disputes the fact that prices became irrational for flowers once greed kicked in.

Today we commonly refer to “FOMO” (Fear of missing out). Well, FOMO is involved in these mania patterns and it feeds on itself once the buzz is buzzing.

If human beings can get caught up in mania over flowers, we can get caught up in anything.

We’ve hit the phase now where there seems to be a story every day about this or that technology that is up 10x, 100x, 1000x in the past couple of years.

Please do yourself a favor and exercise some discipline on this. If you simply can’t resist and want to put some money into ideas like this, make sure you only put in money you can afford to lose 100% and not have it impact your future financial security.

If you make a big return, then awesome! Congratulations. But if you lose it all, it won’t change your family’s future for the worse.

There will likely be people who make big money and get out in time when these trendy ideas come around. Anything is certainly possible.

But don’t fool yourself; there is a difference between investing and speculation. This is speculation.

In the end, the people piling in based on the current buzz will most likely lose big and they’ll have a sad tale to tell.

And it will go down as another chapter in the future book “Manias and Bubbles: how otherwise intelligent people lose their minds when chasing quick riches.”

You’ve been warned.

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