WHICH ARE YOU? SPECULATOR, COLLECTOR OR INVESTOR?

Investors come in all varieties. Some folks are cautious others emotional. Some are busy while others are casual. However some folks who think they are investors are not true investors at all! Most folks are observers, speculators or collectors. Most of the observers are those who have given up!

My parents did very well investing in real estate. They worked hard, saved money and invested with success. They also invested in stocks but their returns were not as good as in real estate. This is interesting because the long term average return in stocks is better than the average long term return in real estate (they did well with leverage and without leverage in real estate).

My Dad was smart. He was successful in many ventures. He taught me much about investing and I appreciate his lessons. I have often wondered why he was more successful in real estate than in stocks. Gary Keller in "The Millionaire Real Estate Investor" hit the nail on the head. He lists four investment profiles: the observer loves ideas but never takes action; the speculator loves the action and buys anything; the collector loves ownership and buys something; the investor loves opportunity and buys to the right thing.

THE SPECULATOR

Mom and Dad were very successful real estate investors because they shopped around to find what they wanted, bought it and generally held it long-term. On the other hand, Dad speculated in the stock market. He saw the stock market as the place to make a quick buck. He held a number of substantial positions long term but for the most part, he sought quick trading action. He loved the action!

I have never know anyone to make consistent profits trading puts and calls but Dad loved to try. He loved to study stock charts and to buy and sell for short term moves. This was a form of entertainment. It was a fun hobby that could be practiced from his home office. He also purchased many a speculative low cap stock. For example, he purchased SIRIUS satellite radio based on tape action when he did not even know what business the company was in. Dad did very well in the market for long periods of time, however, he eventually landed on the wrong side of the market--giving back his gains. Please do not take my comments about my Dad the wrong way. After-all, I and other investors have made plenty of mistakes. We all need to gain perspective in order to be better investors. The reality is that winning by placing thousands of short-term trades over many years has lower odds than winning the lottery. Short-term trading is similar to rolling dice in Las Vegas. The transaction cost and spreads are like the house advantage and the house always wins.

THE COLLECTOR

Mom is a collector. For example, she owned AT&T for decades. It didn't really matter if there were better investments around, she loved ownership of "Dad's" company. The same idea extends to IBM. She has owned it for a long time, she knows it to be a solid company and she will never sell the stock unless prodded very hard. She has little knowledge about the company and does not wish to compare it to other investments. Stocks for her are like her antique pottery collection--she does not know what it is worth and does need to find out. When asked if she will sell a piece for a high price, she declines because she is a collector not an investor. Again, if my any member of my family should read this, I hope they will not take offense. The good news is that collectors do make money. They do not make as much as investors but assets do tend to go up in value over time. There are no transaction costs and taxes are deferred.

Being a collector or a speculator is not a bad thing--I respect either more than the observer who talks a good game but is afraid to put his big toe in the water. Speculators have fun trading and collectors enjoy owning. With just a little more work, either could become an investor but that is like saying that with a little bit of work most of us could become decent bowlers.

Investors buy good value and hold until the value is realized. Investors examine what they own and are willing to sell when the price is high relative to another opportunity. Mom is right to hold her Rosewood pottery. The values continue to rise and she enjoys owning. Should she sale, she would be hard pressed to find an investment that would give her equal value. However, owning a large number of IBM shares just because she has owned them for a long time is not a good reason to own the stock without examining other opportunities. (By the way, IBM should do well for the next several years as the economy has moved into an expansion phase).

The following paragraph from Keller's book is a summary of his thoughts on the subject:

"Investing requires action. Successful investing requires the right action. Observers, Speculators, and Collectors are not true investors--Investors take action, minimize risk, and buy based on investment value; they are a breed apart."

BUY THE BULL! I HOPE YOU ARE NOT AN OBSERVER IN THIS MARKET! BIG GAINS ARE BEING MADE DAILY! ONE OF MY FAMILY ACCOUNTS IS APPROACHING A 100% GAIN IN LESS THAN 2 YEARS! ANOTHER FAMILY ACCOUNT IS UP 30% IN ABOUT 2 MONTHS! YES-ONE NEEDS TO BE CAUTIOUS ABOUT THE STOCKS THAT HAVE MOVED BUT THERE IS MORE TO COME! A DIVERSIFIED ACCOUNT WILL HAVE DIFFERENT WINNERS AND LOSERS EACH DAY BUT IN THIS MARKET THE TOTAL RETURN SHOULD BE SUBSTANTIAL!