Speculative Investments – What? How? Why? When?

avatar By: IS
Date posted: 11.21.2011 (5:00 am) | Write a Comment  (1 Comment)

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A few weeks ago, we did a reader’s survey asking all of you what you liked and would like to see more of on this blog, it’s not too late to answer if you have not done so yet! One of the requests that has been coming up over and over is for more speculative investment posts. Given the name of this blog, it would be hard for me to argue that:)

Back In Context

I like to use a bucket system when managing money. What does that mean and how does it work? It does mean having several bank accounts. All money that I receive will be used to pay for my expenses, etc. There is also money that is set aside for investments in 3 types of accounts:

-Long term retirement account (ETF’s and dividend investing)

-Long term horizon
-Low risk
-Very diversified

-Speculative investing (long and short trades that you can see here)

-Medium term horizon
-”Average” level of risk

-Long term speculative plays (long term speculation)

-Long term horizon
-High risk
-No diversification

Split Between The Buckets

It’s actually quite simple how I do it. I determine an amount of money that I want to set aside in each. For example, every month, the first $1000 that I can save would go into the long term term retirement, the next $500 into the long and short trades and any surplus would go into longer term speculation.

Why Are Speculative Investments Last In Line?

As interesting as these types of investments are, I do understand that they are very risky so any amount invested might end up  being lost. Most of you know how I would be investing the first and second bucket but the third one is not as clear.

Long Term Speculative Plays

We are all different but personally because of my interest and knowledge of technology stocks, I tend to concentrate on those and try to determine stocks that could possibly become the next Microsoft (MSFT). The companies can be newly turned public but I don’t think it’s an actual requirement! Keep in mind that I consider these investments to be high risk and could certainly imagine losing on many of those bets. The goal is to hit one or two home runs.

How I Determine Those Picks

In that third bucket, I am not looking for 10 or 20 companies, this is about choosing at most 5 stocks that I truly believe in:

-Stocks that have a lot of upside
-Stocks that have an edge on competition
-Metrics that are easy to quantify (I don’t necessarily care about profits or even revenues but metrics such as traffic or others must be easy to access
-Companies that I understand well: As much as I’m convinced that mining and biotech companies out there are destined for greatness, I could probably never differentiate between those that will and those that don’t.

Some of the companies that I follow fit into this type of investment even though I’d have a difficult time picking them (right now) in long and short trades because they are such long term plays.

What’s Next

Over the next few months, I will discuss some of the long term speculative plays that I have considered or invested in myself.  As always, I’d be thrilled to get feedback or ideas!

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1 Comment »

  1. avatar

    [...] Because of that, I’ve decided to take a break from entering new trades in the hopes of gaining a bit more perspective but also hopefully seeing more potential trade opportunities. No, I will not repeat my TripAdvisor mistake by trading Facebook right away although I might get into the action as a longer term, speculative pick. [...]

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