When a group of cowardly-hackers-turned-self-proclaimed-judges launched a criminal intrusion against AshleyMadison.com, the social site for married people seeking “discreet encounters,” the lives of 37 million site members were upended.
Far worse, “the lives of their innocent spouses and children teetered on the precipice of public exposure as the hackers—dubbed the Impact Team—threatened to expose the site users’ profile descriptions, which detailed customers’ secret sexual fantasies and matching credit card transactions, real names and addresses,” according to a Time magazine report.
While few people would argue that infidelity is wrong, what the hacker group did by capitalizing on the risky behavior of Ashley Madison customers marks an appalling breach of public confidence. As free thinking men and women, it is our right to make our own decisions and to live with the consequences. What the Impact Team did was to super-size the risk side of the equation after the decision to engage in speculative behavior had been made, putting innocent lives at risk in the process.
Perhaps the takeaway here, at least for the business-minded, is that there are far more productive—and profitable—ways to speculate. Ordinary investors, for example, find it almost impossible to generate hundreds-of-percent returns in a year. Most consider themselves very fortunate if they can outperform the S&P. But professional speculators march to the beat of a different drummer, often racking up super-sized gains for their efforts.
Unfortunately, the term “speculator” has been much maligned by our finger-pointing, blame-obsessed media culture. You’ve probably noticed that every time a market bubble bursts, or a company has to explain away some foolishness on its balance sheet, a politician or CEO will run to the media with horror stories of speculators gone wild. What else can they do? They have to say something.
It doesn’t help that many people—usually with some help from financial advisors—equate speculation with risk. Never mind that, when a professional speculator enters the market, he or she focuses on assuming less risk than the average investor, for much larger returns.
No one knows this better than Paul Mampilly, editor of Professional Speculator, who says the key to creating this kind of success is understanding the difference between investing and speculating.
With investing, the investor is looking to put money to work over a long period of time. He may buy an existing business, such as a sandwich shop or a bowling alley. Or, she may invest in a rental property or a parking garage—even a publicly traded blue chip stock, such as IBM. Long-term investing is a great, time honored approach to personal finance for good reasons. It’s what most people do, and it’s probably the only thing they should do with the lion’s share of their money.
But for those looking to double, triple, or quadruple their returns, Mampilly says trading for the short term—with the intention of cashing out in a few years or less—is the way to go. This kind of speculation, when done correctly, can produce some truly massive returns.
For a better sense of how it works, let’s consider one of Mampilly’s most successful trades. In late 2000, while working as an asset manager with more than a billion dollars under management, his job was to research companies for a portfolio manager, who had final say over which stocks to buy or sell.
One of Mampilly’s recommendations was a tiny company called Intuitive Surgical. At the time, Intuitive was selling a robot that could perform surgery on people. Although many potential investors dismissed the robot as a ‘toy’, Mampilly was intrigued.
“I attended a demonstration of Intuitive’s robots at a New York City hospital,” Mampilly wrote in an email. “Watching the surgeon operate the robot was like watching science fiction. This ‘toy’ was much, much less invasive than conventional surgery.”
Taking it a step further, Mampilly spoke with surgeons who shared miraculous stories of patients who were able to walk out just hours after a heart-bypass operation—patients who used to require a week of recuperation. “With Intuitive’s machine, surgeons no longer had to crack a patient’s ribs open to get to the heart,” he wrote. “Instead, the robot made a tiny incision. It healed much faster than broken ribs … caused minimal blood loss … and left minimal scarring.”
He could see right away that this revolutionary technology would eventually replace most manual surgery.
As great as innovation is, people are generally conservative when it comes to forecasting the impact of new technologies. They tend to cling to their old, familiar tech even when newer and better devices are available.
Case in point: In 2000, Wall Street and the medical establishment viewed Intuitive’s robots with a very skeptical eye. Even the portfolio manager Mampilly worked for thought he was nuts when he recommended buying Intuitive Surgical stock.
But 15 years later, with a market cap of $18 billion, Intuitive Surgical is recognized as one of the largest medical device makers in the world. Its robotic surgeons are considered medical miracles, currently deployed all over the world. And Intuitive hails as one of the greatest growth-stock winners of the past 20 years.
“If you had put $1,000 into tiny Intuitive Surgical at $10, the approximate price I remember recommending the stock, you’d have nearly $50,000,” Mampilly wrote. “Intuitive is now worth 58 times what it was back in 2000.” So, an investor who bought and held Intuitive stock generated a 5,688% return.
Such is the power of speculation.
In 2000, Intuitive wasn’t the kind of company investors were taking seriously. But it was an outstanding speculation. Those with an eye for potential—and the discipline to stick with a few key strategies—could limit their risk while positioning themselves for mammoth profits.