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Mr. Watts was President of the New York Cotton Exchange between 1878 and 1880. For all those that whine today about supposed changing markets, keep in mind Mr. Watts is from the 19th century, a time long before the CNBC daily hype machine.

What is Speculation?

Source: Speculation as A Fine Art by Dickson G. Watts.

Before entering on our inquiry, before considering the rules of our art, we will examine the subject in the abstract. Is speculation right? It may be questioned, tried by the highest standards, whether any trade where an exact equivalent is not given can be right. But as society is now organized speculation seems a necessity.

Is there any difference between speculation and gambling? The terms are often used interchangeably, but speculation presupposes intellectual effort; gambling, blind chance. Accurately to define the two is difficult; all definitions are difficult. Wit and humor, for instance, can be defined; but notwithstanding the most subtle distinction, wit and humor blend, run into each other. This is true of speculation and gambling. The former has some of the elements of chance; the latter some of the elements of reason. We define as best we can. Speculation is a venture based upon calculation. Gambling is a venture without calculation. The law makes this distinction; it sustains speculation and condemns gambling.

All business is more or less speculation. The term speculation, however, is commonly restricted to business of exceptional uncertainty. The uninitiated believe that chance is so large a part of speculation that it is subject to no rules, is governed by no laws. This is a serious error. We propose in this article to point out some of the laws in this realm. There is no royal road to success in speculation. We do not undertake, and it would be worse than folly to undertake, to show how money can be made. Those who make for themselves or others an infallible plan delude themselves and others. Our effort will be to set for the great underlying principles of the “art” the application of which must depend on circumstances, the time and the man. Let us first consider the qualities essential to the equipment of a speculator. We name them: Self-reliance, judgement, courage, prudence, pliability.

1. Self-reliance. A man must think for himself, must follow his own convictions. George MacDonald says: “A man cannot have another man’s ideas any more than he can have another man’s soul or another man’s body.” Self-trust is the foundation of successful effort.

2. Judgement. That equipoise, that nice adjustment of the facilities one to the other, which is called good judgement, is an essential to the speculator.

3. Courage. That is, confidence to act on the decisions of the mind. In speculation there is value in Mirabeau’s dictum: Be bold, still be bold; always be bold.”

4. Prudence. The power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance of these two, Prudence and Courage; Prudence in contemplation, Courage in execution. Lord Bacon says: “In meditation all dangers should be seen; in execution one, unless very formidable.” Connected with these qualities, properly an outgrowth of them, is a third, viz: promptness. The mind convinced, the act should follow. In the words of Macbeth: “Henceforth the very firstlings of my heart shall be the firstlings of my hand.” Think, act, promptly.

5. Pliability. The ability to change an opinion, the power of revision. “He who observes,” says Emerson, “and observes again, is always formidable.”

The qualifications named are necessary to the makeup of a speculator, but they must be in well-balanced combination. A deficiency or an overplus of one quality will destroy the effectiveness of all. The possession of such faculties, in a proper adjustment is, of course, uncommon. In speculation, as in life, few succeed, many fail.

Immediate Desires Ruin Success

“It is not truly realistic or scientific to take short views, to sacrifice the future to immediate pressure, to ignore facts and forces that are disagreeable and to magnify the enduring quality of whatever falls in with immediate desire. It is false that the evils of the situation arise from absence of ideals; they spring from wrong ideals.”
John Dewey

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