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Are you a Speculator or Investor?
During my youthful, carefree years at Strawberry Park Elementary School, I recall a few
events that created some strange feelings inside me. I remember the “duck and cover”
drills that everyone in the school trained for each year. When the school siren sounded,
we were instructed to duck under our desks and cover our heads for protection. As we
knelt under our desks, my teacher would go around the room and draw the shades over
the windows to keep any unexpected broken glass from harming us. While I didn’t
really grasp the extent of what was going on, I remember feeling uneasy as we
prepared for an unknown catastrophe.
I recall another instance when I was in the 2nd grade. One of my teachers announced
that President John F. Kennedy had been assassinated. I vividly remember the
paralyzing look of fear on her face as she told us what had happened. Even more
recently, I remember the empty feeling in my stomach as I watched the two World Trade
Center buildings collapse on September 11, 2001.
The fear of an unknown future event always causes us to pause and reflect. I have
experienced many economic storms and worrisome events that can do one of two
things:
1. Cripple investors into selling at the wrong time; or 2. Create wealth by buying when others are worrying. The markets never behave well whenever discussions about war become a prominent media theme. Last month, we experienced a small slide of the S&P 500. September’s path could continue slightly downward. There are questions on many minds in regards to Syria, Egypt, the budget debt ceiling, and the policy decisions of a new Federal Chairman. When it comes to our financial futures and how we behave during troubling times, the two main questions we all need to ask ourselves are: 1. Are we a speculator or an investor; and 2. Can we emotionally live with any potential market volatility?
A speculator is someone who buys an asset in hopes of a short-term increase in price.
An investor is someone who buys an asset with the expectation of a long-term increase
in price.
Most of what we hear in the media is about speculation, not about investing. CNBC and
Bloomberg have created a vast viewership focused on the short-term ramifications of
the markets. They are up to date, exciting, and they seem to keep viewers on the edge
of their seats. The media can instantaneously report events occurring around the world.
The internet and media, with its real-time updates, have certainly made the markets a more volatile ride for investors. It can contaminate the mind of a long-term investor who loses on the short-term volatility rather than the long-term benefits of an investment. Warren Buffet, one of the wisest investors of all time, expressed rather eloquently how I feel about long-term investing and the future in his article Buy American. I Am.: If you are a speculator, good luck going to sleep or taking a vacation. If you are an investor, you need to take some Dramamine and get used to longer-term trends and market cycles. We are certainly range-bound in a cyclical bull market right now. I would certainly look at any stock market setback to provide a buying opportunity and give way to renewed optimism. Having said that, the markets won’t go up continuously. The markets and investing have always been plagued with potholes. During my career watching the markets and investor behavior, I have seen the 1980-82, 1990-91, 2001, and 2008-09 recessions. I am sure we will have more recessions and trying times in the future. I am not a speculator focused on short-term, headline-driven news. For your personal investment portfolios, I try to keep a long-term perspective for your long-term needs. Our firm’s goal as your advisor is to make your path as smooth as possible; thereby, keeping your emotions in check. Average investors have underperformed the stock market for the past 25 years and have their emotions to blame. The surest way to financial harmony is to have your investment portfolio in balance with your personal preferences and emotional DNA. Your journey to financial security should feel like a long train ride, not a two minute taxi ride in Manhattan. We have taken a look at your short-term and long-term needs and addressed your portfolio in a prudent manner. Your age, net worth, tax situation, income needs, and appetite for risk are all taken into account to arrive at what we feel is an optimal, balanced asset allocation for you. As always, if you have any questions, never hesitate to give us a call. Have a great September!

Source: http://www.johansonfinancial.com/sites/default/files/users/DavidJohanson/September%202013%20-%20Are%20you%20a%20Speculator%20or%20Investor.pdf