Speculation returns for big risks discuses trading huge possible returns risks that may include total investment loss.

can speculations produce big returns?

Money Choices That Grow Wealth course 250, Lesson 6, answers the question, can speculations produce big returns? At the end of the lesson, links to related content help you learn more.

What you learn:

covers investors trading off speculative risks and rewards. Links at the end guide you to related content if you want to learn more.

What’s in this lesson for me?

The lesson teaches investors to be aware speculative risks and rewards are not directly related and can be managed. It also teaches that speculative risks range from low to extreme and rewards possible range from likely to nearly impossible. Knowing those possibles helps you improve to grow as an investor or speculator.

Speculative trading an investment choice

The attraction of speculation is clear - huge possible payoffs! Investors can speculate on any company from a concept, a tiny startup of the largest enterprise. The risks and potential gains are most extreme among the junior and startup companies.

Speculations are not income earning investments. They may prove to be great trades or very high risk gambles but they have limited or as yet no ability to produce income. As such they are not investments. Investments must pay a little or a lot, but they always pay.

Speculations do not pay but offer the possibility of a much higher returns, much faster, than investments. But speculations have higher risks than investments. Those risks can be modest or extreme. Better speculators develop good risk assessment and management skills.

Highest risk speculations have the possibility of a total investment loss. That potential loss is not necessarily offset by a high potential reward. Beginning investors should be aware that extreme risks mean there is a very real possibility of total investment loss. No beginner should consider or have anything to do with any speculative investing play.

A key point to learn is that increased risk does not directly tie to higher reward. Risk and reward are associated but do not directly offset one another. Media give disproportionate amounts of attention to trading and speculating. That noise can mislead new investors. Investors must develop the ability to filter media noise.

Speculation falls at the most extreme end of all high risk strategies. This is as close as investing can get to gambling. In fact, in legitimate casinos, the gaming odds can be considerably better than among the more extreme speculative plays.

The junior mineral explorers are the largest speculative stock group in Canada while in the U.S. the Over The Counter (OTC) Market hold the dominate number of speculative plays. In the, Oh Canada and our one place to trade post, the Canadian markets including the TSX Venture Exchange were discussed. In the, Sorting through the other American markets post, we discussed the OTC Market.

Like in other human enterprises, there are both legitimate and shady undertakings in the investing world. A disproportional amount of both manipulation and outright fraud occurs among speculative stocks.

Still, there are also legitimate and real emerging companies, excellent discoveries and and huge investment winners! Enough big winning plays happen to keep investors coming back hoping to catch the next big one!

Should you be tempted, before you get anywhere near this high risk jungle, get help. Have an experienced, knowledgeable and honest guide. Better yet, in my opinion, your financial security will be best served by simply staying completely away.

However most skilled speculators work to minimize risks before getting into a speculation. Speculation big returns for big risks! Huge returns are possible from speculations as a trade off for big risks. Speculators may even accept risk of a total loss when chasing huge potential returns.

Speculative approaches

Two common approaches to speculative trading plays are:

1. Trading on steroids

2. Rip Van Winkle trades

Covering these speculative trades are extensions of our trading discussion. We first discussed, Trading: an aggressive play and then momentum investing as methods of seeking bigger gains, faster. Now with speculating we look at the most aggressive and risky approach to trading.

Trading on steroids

Trading on steroids essentially means buying stock as it rockets up to ever higher prices on exploding volume. These are buying frenzies of raw greed. The ride can be exhilarating at the risk of a deal that may blow up or vaporize along with your money.

This approach waits for the wild run to start before investing. Not being in at the bottom means missing the biggest gains. However it also ensures not being stuck with a dead investment that never moves.

Like any trading, the most important skill remains getting out while there are still buyers willing to pay a higher price. Most especially junior exploration speculations frequently come to a rapid and losing end once the buying frenzy passes.

Rip Van Winkle trades

Rip Van Winkle trades involve buying many junior speculations and waiting for them to move. Speculators using this approach sit on investments in many dormant penny stocks. They hope for a good one or few among those they picked. At times those few can handsomely pay off making their wait and long odds worthwhile.

When such sleeping stocks do wake up the returns can run to multiple hundreds of percent! Those are the happy stories; most go nowhere fast and are simply dead money. Even the majority that do move quickly flame out but a few do go from pennies to dollars.

In extreme bull markets riding speculative stocks can produce phenomenal gains but always at very phenomenal risk. Prices move on news, rumor or simply lies. News or rumor of a discovery, major business, political or environmental event can trigger huge price movements.

Buying a position in the stock of an affected company before such news can turn pennies into dollars. Once the story breaks the action gets fast and furious.

This strategy can profitably work for those with knowledge that have done their homework and can pay close attention to the market. Have I mentioned: it is not ever a strategy recommended for beginners?

In Canadian junior resource penny stocks there are a myriad of other ways to play the speculation game. This can work for an experienced investor that makes the effort. However, it takes considerable time, effort and knowledge to learn. Beginners stay away. You need an escort here.

Why this lesson matters

By being made aware that speculative risks and rewards are not directly related and can be managed gives investors important insight. It also helps to know speculative risks range from low to extreme and that possible rewards range from likely to nearly impossible. That knowledge can help you improve as an investor or speculator.

Key points to takeaways from lesson 6, Speculation big returns for big risks, includes:

Speculation big returns for big risks means deciding to trade huge possible returns risks that may include total investment loss for large gains.

• Corrections with 10% price drops happen regularly.
• Dips and corrections generate much meaningless market noise.
• Corrections are quick 2 to 14 week events about once a year.
• Cause, effect and timing of corrections has not been discovered.

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Money Choices Grow Wealth, lesson links:

Introduction to Money Choices That Grow Wealth Lesson 1

3 Stock market approaches Lesson 2

Income, value and growth investing Lesson 3

3 Distinct investing approaches Lesson 4

Aggressive trading chases profit Lesson 5

Momentum investing trading play Lesson 6

Speculation returns for big risks! Lesson 7

Risks complicate spectacular returns Lesson 8

Speculation failures improve investing Lesson 9

Middle trader thinking differs Lesson 10

Investing trading and speculating differ Lesson 11

Buying ETFs accelerates returns Lesson 12

Next lesson 8: Risks complicate spectacular returns

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