Exploring Speculative Investing

To trade (speculate) or not to trade is a difficult question faced by investors, especially when stocks tend to trade sideways for a longer duration than expected. Actually, what is better - to remain passively invested for the long term or to speculate on the basis of market directions and beat the markets to generate above average returns? Or should investors attempt to speculate and at the same time remain invested for the long term? explains one of the smartest ways to manage the dilemma

- Shreya Chaware

A majority of investors dabble in the stock market with their own unique philosophy and expectations. In fact, wrong expectations or rather overhyped expectations create some serious problems for beginners. However, after spending a good amount of time in the equity markets, most investors realign their investment goals and the strategies they wish to adopt, the focus of course being to maximise returns. The interesting fact is that even after spending several years in the equity markets and remaining invested for the long term, most investors are tempted to indulge in speculative activity for quick returns. The temptation for quick returns is huge and almost unavoidable.

Managing Speculative Investing

Several academic research studies have pointed to the benefits of remaining invested in the equity markets for the long term. However short-term speculative bets, if successful, can do wonders to the overall portfolio returns. It all depends on how much capital is employed for speculative investing purpose as against the amount deployed for long-term investment purpose. The chances of success in speculative investing can improve if the speculative investment portfolio is completely detached from the long-term investment portfolio. Often enough, the reason for failure in speculative investing and in long-term investing is the lack of clarity and inability to bifurcate both the portfolios.