Speculation

Speculation is a term related to bets & outcomes. I would like to focus on the stock market and show when and how a speculation can be successful.

Buy the biggest loser (Winner & Loser)

When it comes to the procedure of how to choose a stock for a good speculation outcome then you need to stick to the total looser stocks in the market. After losing 90% of value what can go wrong buying it?

Example:

The Stock price of a company fell from well over 100$ to 10$. (This is a real stock as of 02-SEP-22)

It looks like a total bargain. But you must be aware that the stock market is not functioning like your local supermarket or grocery store.

Unfortunately, the stock can lose the remaining 10% as well and go to 0$, which makes it a 100% loss for you, no matter of the buy-in price (If you bought at 10$, you lose all, if you bought at only 2$, you lose all). It all depends on the future outlook and the circumstances. You need to find out why it crashed 90% and what’s the real worth. Is it a solid company or is it complete nonsense? Nonsense companies have no product, no relevance in the market and no future, however solid companies could have a come-back. The products of the solid company might be needed and bought by the public and there is an interest and chance to keep this company in the market. That is one of the safer circumstances for a speculative bet. The company of the chart has so far no product, it is in development. But at the same time it has no debt, so once there is a product, the turn could be very heavy. It might be helpful to calculate the book value of the company as well. That is related to the value of the assets, which can be converted into cash (sold), once the company is bankrupt.

Online pusher and market participants

Sometimes the market ticks different. As mentioned, the company or product should have a future for a successful speculation. There are however cases when there is no future, everyone knows it, but the speculation is successful in the short term. Recently, there are more and more “pushers” on online platforms, such as reddit. They write articles and push the buy behavior of other people to bring stock prices up, when there is no value of the related company. The market knows that there is no value but speculate that other market participants buy the stock for a higher price. In this case, a chance is very difficult to predict. If you are not one of the first participants in this “pump-and-dump” sceme, then other opportunities might have better results. Further, this is more a strategy of fraud than speculation.

Gambling

To thrill yourself more, you could further buy options or derivates (CFD, knock-out, turbo, put, call, etc.) of these stocks and make an intention to gamble. Almost all of these financial products have something in common. They are very costly, even when your bet is successful in the end. Before you try your luck, you must make yourself aware how far away your action is from a local casino visit. The difference between buying a stock and buying a financial product by an emitter is, that you bet against the calculation of the emitter, too. You have two “enemies” in this case. The future of the company and the emitters contract of the financial product. Therefore, you must read that contract and look out for traps. It is very sure, that there are traps in the contract, otherwise there wouldn’t exist any contract or product. If you come to the conclusion that it is okay for you and there is a higher chance than risk, you can make the bet. The higher chance than risk would mean a future gain of more than 100% plus the cost of the financial product (20%+). Then you are break-even with your bet for a 50-50 chance. I would recommend at least a 200% chance. (The stock in our example should rise at least back to 30$ or the financial product should have a similar leverage). The reason is that very often you can and will lose all of your money in a speculation, but if you win, you can win very much.

Buy the lowest winner

On the other hand, a way of speculating goes with the unknown company that is quite hidden from the public. This kind of speculation is not less risky as with the hyped losers. The case is mostly with mining businesses and start-ups. They have a high potential for growth but start quite low. If they are humble, they really start low in their IPO. In the chart of the example the IPO started quite high and it was intended to collect very much capital when there was a hype around this company. Now the market realized it and now what? Now there are chances for the speculator. Without a chance there is no speculation.

Speculation outside of the stock market

In my opinion it is not much different from a strategic perspective how to make successful speculations with other products than stocks, such as houses, old cars, jewelry or antiques. As every market ticks a little different, you need to find the nuances of the chances for a successful speculation. In my opinion the best way is to speculate with something real, a real product or thing (Not a service). I have thought about some basics and this is my conclusion that one must be aware of before taking action:

• In any case, you should first check if there can be a higher demand and less supply in the future for your product. A higher demand means a higher price.
• Then you should be aware of your time horizon. How long does it take to “hold” the item? What is the cost for that?
• And last: What will you do, if it doesn’t work out? Will you go crazy or will you move on to your next chance? Remember Something basic about freedom.