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BusinessDoes your strategy make you an investor or speculatorI have two concerns.investor is someone who has a well thoughtthat information to their advantage.My first is that you are a 'speculator' and out investment portfolio with adequate diver-- Submited by Peter Watson, MBA, CFP, not an 'investor.'sification that includes a multitude of differ-R.F.P., CIM, FCSI. In 1991, Peter founded DollarsThe other concern I have is that you are ent securities, sectors and geographic regionsPeter Watson Investments in Oakville. Peter under the misconception that you invest throughout the world.can be reached at 905-842-2100 or visit the &intelligently and would consider yourself a There is significant investment researchwebsite at www.peterwatsoninvestments.Senseconservative investor.information available. Investors need to usecomThe objective of todays article is to draw By Peter Watsonattention to investor behavior and then com-pare that to what investment research has found to be the best way to invest.We can probably all agree that a speculator stocks and stocks of small companies.takes risk. They might think that the price of Does this mean you should own only value gold is going to continue to increase so they stocks from small companies? Of course not. buy gold.But should value and small companies form a Most of us do not consider ourselves part of a diversified portfolio if you have a speculators. To many, the term speculator long-term investment horizon? Definitely.has a negative connotation. Our challenge as investors is to ensure we However, in reality there are two ways use research and historic information to our most investors speculate. The first is by pur-benefit. The ultimate goal is to build an chasing specific stocks. The second is by investment portfolio on the solid foundation attempting to time the market through your of this information.buy and sell decisions.The ideal investment strategy should be to We take risks and in that regard, despite only take risk that is likely to reward us. BDO CONGRATULATEShow we see ourselves, we are speculators. The Putting this another wayif the risk we take ITS NEWEST PARTNERkey component in all of this is risk. Some is not likely to result in a profit then avoid types of risk are good and others are not.that particular risk.Professors Fama, University of Chicago If it is good to invest in stocks then why years of experience providingassurance,Booth School of Business, and French, Tuck not just invest in the best stocks to make even accounting and advisory services to clients in multiple sectors. He specializesSchool of Business at Dartmouth College, more money? Great idea but there is one in pensions and other employee benefi t trust funds, and also has significantexperience in the manufacturing, distribution and services sectors.studied investment returns and published problem. It does not work.their findings in the early 1990s.Trying to pick the most profitable stocks BDO is the fi fth largest single national accounting and advisory partnershipin Canada with 95 offi ces nationwide. Our professionals have the expertise to Their research showed that over a long-and then determining when to buy and sell is serve owner-managed,large andmid-market companies, communities andterm investment horizon there are only three ultimately a guess. The only thing this non-profits in a broad range of industries. BDO. More than you think.risks that actually reward the investor in the approach does over the long-term is add to Assurance|Accounting| Taxation | Advisory Servicesform of excess investment returns to com-your transaction costs.pensate for the additional risk. So my definition of a speculator is an 3115 Harvester Road, Suite 400Burlington ON L7N 3N8These profitable risks are investing in investor who attempts to outsmart the mar-Direct: 905 633 4917stocks vs. bonds, investing in lower cost value ket and purchase specific securities at certain Main:9056399500stocks vs. more expensive growth stocks and times.www.bdo.cainvesting in small companies as opposed to Speculation does pay off sometimes but larger companies.that is usually due to good fortune. It is not BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited,Therefore, when an investor is looking for something that will likely continue to be suc-aUK companylimited byguarantee, and formspart of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.long-term investment gains the three options cessful.that should be considered are stocks, value In contrast, my definition of an intelligent 15 Thursday, February 3, 2011 OAKVILLE BEAVER www.insideHALTON.com