Why Should Retail Investors Avoid Speculation?

Okay friend, let's dig into this. Your question is really spot-on; getting this right means you're more than halfway to success on your investing journey.

I'll share my thoughts in plain language, based on my own understanding.

Let Me Break It Down: Why Us Regular Folks Should Steer Clear of "Speculation"

You've got "Graham" and "The Intelligent Investor" in the question tags – perfect! Benjamin Graham, Warren Buffett's teacher, drew a crystal-clear line between "investment" and "speculation" way back in his books.

An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.

That's a bit wordy, so let me translate:

Imagine two ways to make money:

Investing is like cultivating a field: You carefully study the soil (a company's fundamentals), check the weather forecast (industry prospects), plant your seeds (invest capital), then water and fertilize (patiently hold), looking forward to the autumn harvest (dividends and share price growth from company growth). You know there might be hailstorms or droughts (market volatility), but you have confidence in the land's fertility and know it will eventually yield.
Speculating is like betting at a casino: You don't care what the dice are made of or the casino's history. You only care about one thing: will the next roll be big or small? All your decisions are based on guessing what others will bet next, or pure gut feeling. Win, and you feel like a gambling god; lose, and you might lose your shirt.

So why should we ordinary investors be like "farmers" rather than "gamblers"? Here's why:

1. We Don't Have the Information or Tools to Beat the Pros

Let's be honest, the speculative market is a battlefield. Who are your opponents? Professional institutions on Wall Street – staffed with Ivy League grads earning top dollar, wielding supercomputers and the fastest information feeds.

They get information first, analyze it with complex models, and execute tens of thousands of trades in the blink of an eye using high-frequency algorithms.

What about us ordinary folks? We look at delayed quotes, hear "insider tips" filtered through who knows how many people, using basic K-lines on our phone apps for analysis.

It's like taking a rifle against an aircraft carrier fleet. What's your chance of winning? You might get lucky occasionally, but long-term, you're essentially fuel for the machine.

2. Human Nature is the Biggest Enemy

The biggest allure of speculation is "fast money," which exploits two core human weaknesses: greed and fear.

Greed: You see a stock (or crypto) jump 30% in a day, someone you know made money on it. How do you feel? Probably itchy fingers, thinking "I could do that too," fearing you're missing out on easy riches (FOMO - Fear Of Missing Out). So you FOMO in, often at the peak.
Fear: You buy in high, then the market dips. Yesterday you were up 10%, today you're down 20%. Your instinct? "Sell now before it gets worse!" So you panic sell on the decline.

Buying high, selling low – that's the classic "dumb money" playbook. Real investing, however, is counter-intuitive. It requires fearing when others are greedy (thinking prices are too high) and being greedy when others are fearful (seeing quality assets on discount). This demands immense psychological strength and discipline. Speculation magnifies your emotions, turning you into their slave.

3. Speculation is a "Zero-Sum Game," Investing is "Positive-Sum"

Zero-Sum (or Negative-Sum Game): In speculative markets, over the short term, the money you make comes directly from someone else's loss. You're all fighting for the same size pie. My slice means your plate goes empty. Factor in trading commissions, fees, and taxes, and it's actually a negative-sum game – the total pool of money shrinks.
Positive-Sum Game: Investing? You buy shares in a great company, becoming a part-owner. That company creates value through excellent products/services, generates profits, grows, and makes the whole pie bigger. You, as an owner, share in that prosperity through dividends and price appreciation. The company grows, society benefits from its products/services, and your wealth builds. This is a game where, long-term, most participants can win.

So why gamble in a ruthless, cannibalistic zero-sum arena when you can participate in a positive-sum game where you build wealth alongside great companies expanding the pie?

4. It's Exhausting and Not Worth the Effort

Speculation demands constant screen watching, studying charts, chasing news, and living in a state of high tension. Euphoria today, despair tomorrow – your quality of life suffers.

For most of us with regular jobs and lives, is this worth it? Money should serve our lives, not make us its perpetually anxious slave.

Investing, especially long-term value investing, is different. You choose your "field," set your strategy (like dollar-cost averaging), and then mostly let it be, letting time do the "watering and fertilizing." You can focus on your career, family, and enjoying life, untethered to the screens.

Conclusion: So What Should I Do?

I'm not saying "avoid stocks entirely." I'm talking about getting your mindset right: commit to investing, not speculation.

Know What You Own: Only buy companies or index funds you understand. Buy Moutai? At least know it's the top liquor brand. Buy Tencent? You probably use WeChat daily. Buy an index fund (like the CSI 300 ETF)? You're betting on a basket of China's top companies – a bet on the nation's progress.
Think Long-Term: Forget get-rich-quick schemes. Think in 3, 5, 10+ year horizons. Treat investing as "saving," but saving into assets with greater growth potential.
Seek a Margin of Safety: This is core to Graham's wisdom. Simply put, "buy bargains." Wait for quality assets to go on sale ("trade below intrinsic value"). This provides a buffer even if your assessment isn't perfect.
Diversify: Don't put all eggs in one basket. Keep the bulk of your money in sound investments. If you must scratch the speculative itch, Graham even suggested dedicating a very small portion (e.g., no more than 10% of capital) – money you can afford to lose entirely – in a completely separate "gambling" account. Screw it in, but keep it rigorously segregated and be okay if it goes to zero.

In short: Investing is a marathon, not a sprint. For us regular folk, slow, steady wealth-building is infinitely more reliable and less stressful than chasing overnight riches. Hope this helps you out!