Investing vs. Speculating

I have written a bit about investing, for example about simple beginning strategies like Dollar Cost Averaging (DCA) and Value Averaging (VA).
I've also written some thoughts on risk and on greed.

I think that today is a good time to consider what investment is and is not.
The main reason to do so is because a lot of people are talking about how Bitcoin (and a few other cryptocurrencies) have fallen dramatically today.

@cryptopassion posted the following image that speaks volumes:

Source: STEEM - The correction is continuing; retrieved Wednesday, November 14, 2018.

Attitudes about Extreme Events

There are two extreme ways that people talk about this kind of event:

1. "This is great!"
   These are the people that will attempt to convince others that now is the time to double-down, average down, or just hold.
   This is most often an exercise in trying to convince themselves that they haven't made a mistake.
2. "This is terrible!"
   These are the people that are looking to convince others that the world is coming to an end and they have finally found the proof of it.
   This is usually an exercise in self-ego stroking: "See! I was right!"

Here's what you'll not hear: a professional who says, "Yeah, I was half-expecting that, and I am properly prepared for it."
They're not talking about it because they're not surprised by it.

Optimism vs Pessimism

Professionals, in the field of investment as well as others, make a sharp distinction between optimism and pessimism.
One of my favourite quotes on the topic says:

Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
-- Max Gunther, "The Zurich Axioms".

Professionals go into a market like cryptocurrency because they have done their research.
They are not the people who have been talked into "checking out the latest fad".
They're not dipping their toe in the water and hoping things turn out.
Nor are they buying and holding until their money disappears.

Rather, professionals know, before getting in, the way into the market that best suits them.
Before getting in, they have already found the way out that will best suit them.

As a result, they are not surprised by large drops in the market.
They don't have to read charts to try to determine if this means the end of cryptocurrency or the rise of a world-dominating economic power.
They're not trying to figure out if this is the beginning of a bear or bull market.

Speculation vs Investing

The difference in attitude, to my way of thinking, comes down to knowing the difference between speculation and investing.
Speculation has a better chance of failing than of succeeding.
Investments, on the other hand, should be much more likely to succeed than to fail.

So, if speculation is probably going to fail, why would anyone ever speculate?
Simple!
Because the rewards for getting in early can be unbelievably good!

Unfortunately, the amateur, chasing get-rich-quick schemes and dreams of instant wealth, doesn't know the difference.
Rather than build a stable portfolio of investments and doing a tiny bit of speculating on the side, they only speculate.
Yet, because they don't know the difference, when all their money disappears they can't understand what happened!

Since they are speculating, professionals often differ in both their strategies and their tactics.
They may choose to hedge aggressively.
They may choose to explore a new trading system.
They may choose to learn a very particular lesson.

Whatever happens, though, they will never be surprised by anything that is unexpected to the amateur.
They will always be thoroughly prepared for every eventuality.
This, in the end, is why the professional can make a living at trading, while the rest of us pursue it only as a hobby.

Now I'm comfortable if your opinion differs from mine.
In my opinion, cryptocurrency is not yet an investment; it is 100% speculation.
As a result, it's not enough to be simply be prepared to lose your principle.
In this kind of market it's important to know what you're looking for before you get in.
You have to be ready to receive more than just monetary profit..
There should also be important lessons that you're attempting to learn that will grow you as a trader.
That way, whether you monetarily win or lose, you can still win.

I wish you increasing success in every venture!