Thomas Gibson had a front-row seat to the speculative madness in Wall Street at the start of the 1900s. He saw traders succeed and (mostly) fail on a regular basis for a decade. In those few successes and many failures, some common themes stood out.
For instance, ignorance, overtrading, and negligence were the main reasons people lost money.
The business method, as he called it, was absent. More often than not, speculators treated the market as a casino rather a place to buy and sell shares of businesses for cash. They knew little about the companies behind the shares they bought — relying on tips over research.
Worst of all, they seemed to do everything backward. The height of speculation was always at market peaks when prices and enthusiasm were highest. But when opportunities were prevalent at lower prices, that interest and enthusiasm had dried up. It seemed as though they wanted quick riches, with little to no effort, or not at all. Slowly wouldn’t do.
Gibson wrapped up those experiences in his first book published in 1906. The Pitfalls of Speculation is a perfect example of how long sound investing principles have been around and how rarely investors heed them. You’ll find some highlights from the book below: Continue Reading…