Jose D. Roncal
That’s the question we wish we could have posed to scores of individuals before they unwittingly put their trust in Ponzi schemer, Bernie Madoff. On June 29, when the judge handed down a sentence of 150 years, Madoff’s victims no doubt experienced a healthy dose of Schadenfreude—that sense of pleasure one gets from the misfortunes of somebody else, especially if that somebody else was guilty of meting out misfortune on so many others.
Madoff received a penalty six times greater than those imposed on the chief executives of WorldCom Inc. and Enron Corp. But even the extreme sentence of 150 years, coupled with a sense of justice having been served, will not compensate for the millions lost in personal savings. In what will likely be remembered as a swindle of epic proportions, the losses could potentially reach $65 billion in both real and phantom investments.
Who’s to blame? The perpetrator and his cohorts alone, or should some of the responsibility for this fiasco be placed on the shoulders of those who blindly went along with greed as the underlying motivator? What ever happened to that old axiom about something being too good to be true? How did so-called investors think they could continue to reap double-digit growth year after year without ever having received a single printed monthly statement or confirmation of how their money was being spent? Who is to blame for accepting such outright questionable financial dealings sight unseen?
That brings us back to our original question, “Are You Investing or Speculating?” the tagline in the title of our book, The Big Gamble. In the current economic crisis, the word speculation is not a popular one. Speculators, hedge funds, and most of Wall Street’s elite are seen as the evil-doers responsible for the demise of the financial system.
When people expect safety and a reasonable level of assurance that their money will reap returns, the word speculation never enters their vocabulary. In our book we contend that when you examine the difference between investing, speculating and gambling, the bottom line is that it’s all speculation. But most importantly, we stress that speculation, in and of itself, is not a bad thing.
First of all, let’s not confuse speculation with manipulation. When the Madoffs of the world cheat and scheme, that’s manipulation. When a scammer tries to pump and dump a stock, it’s manipulation. When governments regulate prices so that they interfere with the free market law of supply and demand, that’s also manipulation.
Manipulation for personal or political gain is illegal and should be punished. But speculation is something different. We believe that speculation, when it’s well thought out, is good for both individuals and economies. Stock speculation and trading play vital roles in our economy and our lives. Trading is really just another word for speculating and investing is little more than speculating, albeit we assume it will have a longer holding period and somehow miraculously involve less risk. Speculators speculate, trader’s trade and investors invest and they all hope to make money.
Part Two of our book celebrates the kind of innovation and speculation that can grow a fledgling start-up company into an empire, and like a tide, raise all boats in the process. We describe how high-stake risk taking entrepreneurs play a pivotal role in the progress of civilization and how they bring excessive prices back into equilibrium, whether from highs or lows.
Are you a speculator? Regardless of your level of experience, we ask you to ponder these questions:
• Were you really “playing it safe” when you thought you were being conservative by investing in U.S. Treasury bills or mutual funds, General Motors, or the big financial institutions?
• Do you know the three most important characteristics you need in order to invest (actually, speculate) wisely in the financial markets?
• Are you avoiding the nine primary financial risks when building a portfolio or allocating investments in your 401(k) plan?
• Can you spot the three surefire economic signals that will show you the “next big thing” and identify potential bubbles when they are beginning to form?
We cover all of these topic and more in our book.
As we scan the current economic landscape, we believe we need more opportunities for speculation, not less. We need to allow plenty of room for risk takers to shoot for the moon. Just imagine a world in which people like Frederick Smith of Federal Express, Steve Jobs of Apple, or Larry Page and Sergey Brin of Google were just on the brink of some new breakthrough. Will venture capital or credit be available to them? How many new jobs could be created?
It’s time to foster innovation and move beyond an environment in which fear robs us of the ability to take some calculated risks. So, putting aside our outrage over the Madoff scandal and looking ahead, we think the lessons you’ll learn from reading The Big Gamble could give you the jump-start to help you move forward. As grim as things appear, we think there has never been a better time to start speculating on the future.
If you found this article helpful, visit www.financialspeculation.com to claim your own copy of Jose Roncal’s popular FREE REPORT, “12 Keys to Smart Speculating in Tough Times.” It’s chock full of valuable insight on how to rebuild your nest egg. While you are there, check out “The Big Gamble: Are You Investing or Speculating?” See for yourself why Donald Trump has called it “a great read!”