STREET DOGS

In The General Theory of Employment, Interest, and Money, John Maynard Keynes defined speculation as “the activity of forecasting the psychology of the market” and speculative motive as “the object of securing profit from knowing better than the market what the future will bring”.

It’s not hard to see how that differs from passive investing.

“There are three kinds of speculators,” says Thomas Maskell, “extrapolators, visionaries, and gamblers. Extrapolation is the act of projecting history into the future; therefore, the extrapolator must be a student of history. In that respect, they are similar to growth investors except they act on historical events that they believe will lead to growth.”

Jesse Livermore saw himself in that class. “Observation, experience, memory and mathematics are what the successful trader must depend on. He cannot bet on the unreasonable or on the unexpected, [but] must try to anticipate them. Like the physician who keeps up with the advances of science, the wise trader never ceases to study conditions, to keep track of developments that are likely to affect or influence the course of the markets.”

“Visionaries make their decision without the benefit of history,” says Maskell. “They go where no man has gone before. They are innovators or at least able to recognise innovation when they see it. They may not create the invention, but they realise its potential and are willing to bet on its success. They are the [rare] buyers behind the bubble, the false start and, in some cases, the early stages of the 10-bagger.

“The gambler plays the odds. They know they shouldn't buy the tip, chase the fad, or trust the boiler room, but they do. To the extent that they play this fool’s game, they know that the only real fool is the last fool. Their goal is to be first and not last.”