How to Avoid Speculative Investing

I recently wrote about having a reasonable investing plan and how important it is to have one, but It’s even more important to have an investment plan during times of market volatility than in bull markets. If not you may be investing speculatively and be unaware of it. Benjamin Graham once said The greatest danger investors face is acquiring speculative habits without realizing they have done so. This can happen so easily to many of us. The reasoning is simple. Because you see every battle is won before it’s fought and if you fail to plan then you will essentially plan to fail.

When I first started my investing journey I would buy quality stocks on sale whenever the price dipped for various reasons and headlines that would make the news. I would pride myself in picking up quality stocks at value prices, but I did not know when to sell. I would search for answers online and asked almost every stock market investor I would run into. I received about 10 different answers to my question. It ranged from always take profits to, cut your losers short and let your winners ride. I was told to place stop loss orders and then place limit buy orders to reenter the position at a lower price. I was so confused. Then I would listen to the white coat investor who would say investing should be boring. After receiving all these conflicting investment strategies, I essentially had none. So I decided to wing it. I began to dip in and out of stocks and would buy low and sell high and I thought I was doing something. Little did I know at the time that I was forming speculative investing habits. I was dipping in and out of the market like it was a slot machine in vagus. This was all because I didn’t know any better. I did not have a plan and I realized that I was failing at investing. So I essentially decided to leave my investment account alone and check it once a month or once every 3-4 months. I then began to see the gains of the bull market without all the daily price fluctuations. I stumbled onto a buy and hold investment strategy. I later found JL Collins and Jack bogle and Mr. Money Mustache and choose FI and then I realized that the white coat investor was right all along. Investing is not about performance chasing and buying the newest and hottest IPO on the planet. It’s not about following the FOMO crowd. It’s about developing a suitable investment plan and sticking to it. Needless to say, that was the end of my unknowingly speculative investment journey. If I now decide to invest speculatively, I am completely aware of it and do so of my own choosing.

I now realize that I am a passive buy and hold investor and I am happy with that strategy. It suits my personality and temperament well and it is the best way that I know to build wealth. Just sit back and let compounding interest do the heavy lifting for me, doubling my portfolio every ten years or so. It’s a natural way to invest for me. I am just happy that I discovered my path during a bull market and not a bear market. If my investing journey had begun in a bear market I would be sitting on the sidelines right now and scared to enter the market like a lot of people I know. I’m glad I found a plan before I developed an unhealthy fear of the market. Now all I have to do is stay the course in order to execute that plan correctly.