You sure hear the “evil speculator” term being thrown around a lot these days.  From the sound of it, speculators are the source of all of our problems.  I swear, I’m just waiting for someone to try to round them all up and burn them as witches or something.

But before everyone gets a bit too hasty, maybe we should think about what a speculator is.  And maybe we should all take a look at ourselves in the process.  Because I think there might be some surprises in store if we do.

Definitions vary, of course, but a speculator is someone who’s main intention is to make a profit in the financial markets by buying low and selling high.  They focus more on price.

An investor, on the other hand, probably does some serious research into the value and profits of the company they are investing in.  They are trying to make a return on their capital through dividends.

There may be some overlap here, but you get the idea.  Speculators want to make money primarily by investment prices going up.

So let’s think about this?

Have you ever bought a stock, and the reason you bought was you were hoping it’s price would go up so you could sell it at a profit?

Hmmmm … you might be a speculator.

Do you have a 401k at work, and you invest in it, hoping the price of the stock(s) goes up?  Did you do your due diligence in researching the company(s), their cash flow, earnings, dividends, ability to pay those dividends, etc.?

You didn’t?  You just invested hoping the price would go up?

Hmmmm … you just might be a speculator.

Did you invest in some mutual funds hoping the price would go up?  Did you do any due diligence – like at least look at the different company stocks in the mutual fund?  Anything like that?

You didn’t?  You just bought hoping the price would go up?

You are sounding an awful lot like an evil speculator to me.

And if you didn’t even look at the companies in your mutual fund, there is a good chance one of them is an OIL COMPANY.

Which makes you an EVIL OIL SPECULATOR!

And we all know they are the worst kind.  After all, they are TOTALLY responsible for the rising gas and oil prices, right?  It has nothing to do with …

• supply and demand,
• the spring season when gas prices always go up
• the expensive government mandated changeover to summer gasoline blends
• the government inflating the currency

… none of those things — it’s just the fault of the evil oil speculators, right?

Hey, about the only good thing you can say about those evil oil speculators is that if they round them all up to burn as witches, well, they ignite rather easily.

Now I’m kidding about that last part, rounding them up and such, but you take my point that the evil speculator thing is being thrown around a bit too loosely, don’t you think?  Because most of us are probably speculators to some degree.  And I think most of us are not so evil.

Now if you’re truly looking for evil, consider this.  Speculators are often confused with market manipulators.  And that’s a whole different story.

Market manipulators bend the rules, don’t play fair, often cut special deals to use the force and favors of government, and don’t want to work within the free market system in a fair way.

They take unfair advantage.  And to my way of thinking, they truly are evil.  Because they can harm or destroy markets.  And cause all kinds of price distortions.

So if you really need a boogieman to blame all of our troubles on – I’d vote for the market manipulators for sure.

And I’d leave the speculators out of the picture.  Because that picture may be a mirror, and we just might see an image of ourselves staring right back at us.

To your health and prosperity – John

P.S. Note that I said “Speculators want to make money primarily by investment prices going up,” earlier just to keep the idea simple to get the point across.  But speculators can also make money betting on the price going down by selling short.

Short selling is when you sell high, then buy low, as opposed to buy low, sell high.  You’re doing the same thing really, just in a different sequence.  And both are all about price action, which is the point about speculators we were making.