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If you are going to speculate make sure you do it in a separate account, preferably one with very low fees, setting strict limits as to how much you are willing to lose because you will lose money.  While a value investor is always looking to buy stocks below their fair value, a speculator is simply trying to anticipate a drop or spike in price. If her timing is right, she will make money; if her timing is off, she will lose money. That’s the fundamental difference between investing and speculating. One is based on pricing and the other on timing. And the truth is very few speculators can anticipating huge market moves. The majority get it wrong.

The essence of value investing takes the timing and guess work out of the equation. A value investor buys at a discount and waits for the stock to move up even if that takes years. The speculator, on the other hand, is always in a rush to buy/sell because timing everything. It’s a day-to-day thing and she will use buy and sell signals, technical charts and mean reversion trading systems to anticipate market fluctuations. All excellent ideas until they are put to the test. The moral of the story, then, is to understand what speculating is and acknowledging the fact that the odds are against you.

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