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Speculative Investing

Terminology

Fundamental Analysis

Fundamental Analysis involves analyzing the financial data of companies in order to determine their suitability for a particular investment strategy.

Technical Analysis

The basis of technical analysis is to visually display a stocks price history on a chart. This allows a stock trader to study the stocks price behavior using technical indicators and chart patterns.

Z-score

The likelihood of a company going into bankruptcy within the next two years can be predicted with a probability calculation known as the Z-score.

An Overview of Speculative Strategies

Speculative Investing Strategies - picture of an overview of speculation with a laptop computer switched on with the screen showing trading in big red capital letters

There are numerous speculative strategies that are utilized by market participants within the stock market. Some strategies are fairly straight forward while others are quite complex. Some strategies are quite easy to implement while others take a considerable amount of effort. There are strategies which are fairly low risk and others which are high risk.

Some of the speculative strategies are suitable for investors and others are more suited to trading. Generally most speculative investing strategies are more suited to short-term and medium-term investing time frames with very few being appropriate for long-term investing. The speculative investing strategies incorporate risk analysis tactics to manage the risks involved.

The speculative trading strategies tend to involve longer time frames than those utilized by technical traders such as swing traders and position traders. Speculative traders generally combine fundamentals with technical analysis as opposed to technical traders who typically focus solely on the stocks price history.

Most of the speculative strategies focus on the smaller companies as they have more potential than their larger cousins.

Some of the common speculative strategies revolve around small-cap growth stocks. These are stocks which have the potential to significantly growth their revenue and earnings. Indeed some of these small-cap growth stocks will be tomorrow's industry leaders. Any investor who buys into these stocks early will be handsomely rewarded in the future years.

Speculative traders are extremely active with small-cap growth stocks as they speculate on the strong uptrends these stocks frequently display.

Another popular strategy utilized by stock investors is value investing which provides good long-term returns. However speculative investing with small-cap value stocks which have growth potential can provide exceptionally good returns. These returns can be further boosted by short selling put options as a means of acquiring value stocks and collecting the option's premiums.

Speculative traders make good use of small-cap value stocks who trade them based on the typical stock price behavior of fluctuating above and below the company's fundamental valuation.

Other strategies seek to obtain the short interest fee charged to short sellers who borrow stock. This short interest strategy involves loaning stock to the short seller and collecting the short interest fee.

The earnings season provides the speculative trader with opportunities. Speculating on an earnings release which is unlikely to exceed the expectations of the market participants is a popular strategy utilized by speculative traders.

Some speculative traders short sell financially distressed stocks facing bankruptcy. The Z-score is a popular indication of potential bankruptcy which speculative traders use.

There always new strategies being developed and old strategies which are no longer used. Speculation is only limited by the imagination of the market participant.

Generally most speculative strategies are not suited to beginner investors or beginner traders. While most strategies are not difficult to implement, any market participant who does not have a sound knowledge of the working dynamics of the stock market will likely run into trouble with most speculative strategies. This also includes technical trading for that matter.

It is best if the beginners spend time educating themselves first before attempting any speculative strategies. When first incorporating any speculative strategies it is generally recommended that only a portion of the account be allocated to speculative strategies and the balance allocated to sound long-term investing strategies.

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