Speculation as a Fine Art

I read a little book online from Dickson G Watts titled "Speculation as a Fine Art"
In it he describes the successful traits of a speculator and rules to use. I agree with pretty much everything he says. He claims that speculation is a venture based upon calculation, gambling is without calculation or very little of it. Most traders I see out there are gamblers.

Essential Qualities of a Speculator

1) Self Reliance - you must think for yourself

2) Judgment - ability to assess conditions

3) Courage - confidence to act on the decisions of the mind

4) Prudence - ability to measure danger with a certain alertness/watchfulness.
(I would also add ability to be patient for premium opportunities)

5) Pliability - ability to change an opinion.

He notes that there must be a well balanced combination of the above traits to ensure success, for if you lack one trait or have too much in another it will impede it. I would also add that it takes time to develop these traits. Judgment for example can only be honed with experience and must be without bias. If you haven't traded throughout a complete bull and bear cycle your ability to judge conditions is limited. Courage, prudence and pliability require you to battle yourself not only your biases but your ego. For example, if you do everything right but still lose money on a trade, will your ego be damaged to the point where you lose courage? On the flip side, when you make a profitable trade will your ego be inflated such that you lose prudence? I think Spok or Data from Star Trek could have made for excellent traders due to their non-existent emotional states of mind.

I consider myself a speculator. Trying to obtain the perfect balance of the above 5 traits is something I wrestle with everyday. My weakness is that I have too much prudence and not enough courage.

I also strongly believe that markets are not always efficient which makes speculation very lucrative. At times the market will correctly anticipate the future...other times incorrectly so. The markets are composed of humans and humans by nature are flawed and even if they weren't there is no way the market can always be right about the future because the future is always uncertain...probabilities can be assigned to various outcomes but they are in end probabilities...not certainties.

If markets are efficient how can you explain all of the manias and panics that have occurred all throughout history? How can an efficient market ever have allowed the dot com mania to have happened? Herd behavior and anchoring are probably the two largest contributors to inefficient markets....and thank God for that because if markets were efficient they would be very boring and non-exploitive.