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Why Speculation is Like Pornography

March 24, 2014

You’ve probably heard the news.

Bitcoin exchange, Mt Gox filed for bankruptcy and hundreds of people who held their bitcoins and cash in their account lost…. everything.

I doubt you traded or speculated in bitcoins. For those that did, the end isn’t pretty.

MTGOX Bitcoin Exchange

The Rise and Fall of MTGOX Bitcoin Exchange

Here are the sobering stories of real people who were on the wrong end of the trade.

Hi.

My name is xxx and I live in Sweden, Malmö. I am writing for me and for my girlfriend and my dad. We all bought and sold bitcoins a last years and made some money. We have taken out some money when we need to and right now me and my girlfriend was going to buy a house and start a family so we tried to withdraw the money in January. Since the money didn’t show up after 4 weeks I tried to contact them but still nothing. I hope that together with you and some others get at least some money back. If you need any proof of the withdrawals or such I can provide some of it. We had in total $49000 on the accounts.

we are unsure how to proceed.

Hello,

at the time that the withdrawal stopped I have over $3MM in fiat at Gox. I now have ~5,400 BTC there. It maybe sizeable enough for your attorneys to consider taking on a BTC claim? In any case, if they think that I can sue based on my fiat balance prior to withdrawal suspension, based on the idea that any subsequent trading was essentially fraudulent, well then I would be interested in join the effort.

Hi,

My name is xxxxxx and I am from California (if that matters). I have about 650 BTC in Gox. I haven’t slept in days and haven’t been able to tell my wife how much I’ve lost. I was an early adopter, just mining in my basement, and I can’t imagine all of my time and work vanishing like this. Please contact me with what I need to do

Hi,

I’m a student and this is almost all of my money I have left (I actually have a lot of debt, which I intended to pay back with that money). I’m really panicking right now and not sure what to do!!!

Speculation and Value Investing

What does this have to do with investing?

Although this isn’t a stock that went bankrupt, there are lessons to be taken from this.

If you must invest, set aside a certain amount of “play money” you are ok with losing. If you can’t sleep and your stomach is in knots after losing $1,000, then don’t “invest”.

Go in with the mindset of expecting to lose it all.

Why Speculation is Like Pornography

To put it clearer, here’s how Buffett differentiates investing and speculation.

You know, it’s like pornography… the famous quote and all that. I look at it in terms of the intent of the person engaging in the transaction.

…An investment operation in my view is one where you look at the asset itself to determine your decision to lay our some money now to get some more money back later on. So you look to the apartment, house, you look to the stock, you look to the fame in terms of what that will produce. And you don’t really care whether there’s a quote under it at all. You are basically committing some funds now to get more funds later on therough the operation of the asset.

Speculation, I would define, as much more focused on the price action of the stock, particularly that you buy or the indexed future or something of the sort. Because you are not really, you are counting on, for whatever factors, could be quarterly earnings, could be up or it’s going to split or whatever it may be or increase the dividend, but you are not looking to the asset itself.

And I say the real test of how you, what you’re doing is whether you care whether the markets are open. When I buy a stock, I don’t care whether they close the stock market tomorrow or for a couple of years… Now if I care whether the stock market is open tomorrow then I say to some extent I’m speculating because I’m thinking about whether the price is going to go up tomorrow or now.

Always Stay Humble

When you hear stories of people losing their life savings by speculating in something like bitcoins, it’s easy to say “I told you so” or “you deserve it”.

But think back to when you invested in a stock based on a tip and it was doing really well only to take a big hit one way or another.

The saying goes that

pigs get fat but hogs get slaughtered

Been there. Done that.

So it’s equally important to stay humble and not jump to conclusions. After all, who hasn’t been in similar situations.

My biggest gains ever were in GGP and VVTV back 4-5 years ago where I made over 1,000% on each.

It becomes so easy to think that making money in the stock market is easy. Especially when you’re sitting on huge gains. It’s so easy to get blinded by the gains and the feeling of having the Midas touch.

It did for me anyways. Thankfully I graduated that class and it’s not one that I want to take ever again.

After reading these stories, it’s another reminder that speculation isn’t worth the money, time and loss of sleep over.

Cheers to value investing.

About the author:

Jae Jun
Founder of Old School Value (http://www.oldschoolvalue.com) dedicated to offering the most complete and detailed stock valuation and analysis spreadsheet. Investing made easy by importing 10 years of financials and 5 quarterly statements directly to excel for your analysis needs. Save time, make smarter decisions and make more money.

Visit Jae Jun's Website


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