I want to tell you a story about something that has stuck with me for years — a lesson that defines not just what we do as advisors but why our clients depend on us, even if sometimes they may not fully understand it themselves.
Back when I was at Merrill Lynch, there were a few occasions when my mentor, David Mallach, came to Boston to give presentations to large groups of our prospects and clients. What I always admired about David wasn’t just his knowledge or his presence — it was his generosity. He never asked for compensation for these talks, and we never paid him. He did it because he believed in what he was teaching — long-term investing.
One presentation, in particular, stands out. We had filled a large ballroom at the top of the State Street building in Boston. It was one of those events where you could feel the energy in the room — people were eager, maybe a little anxious, to hear how they could better navigate their financial futures.
David opened by making a clear distinction between two types of people in the market: speculators and investors. And the way he broke it down has stuck with me ever since.
A speculator, he explained, is someone who buys a stock at $10 and hopes to sell it at $20. Their entire mindset revolves around short-term price movements. They’re glued to charts and graphs, analyzing historical data and waiting for the exact moment when the price hits their target. The speculator’s success, or lack thereof, is dictated by their ability to time the market correctly — a nearly impossible task.
In contrast, the investor is someone who buys a company at $10 and is still holding it when it reaches $90. The investor isn’t interested in short-term price movements or day-to-day fluctuations. They aren’t looking at charts or graphs. Instead, they’re guided by something much larger — a plan. They have a long-term mindset, a belief that by owning a portfolio of well-run companies over the long term, they can participate in the growth of the economy and the compounding of returns.
David’s distinction wasn’t just academic. It was practical. And over time, I’ve come to understand something fundamental.
Every human being, whether they realize it or not, falls into one of these two categories: Speculator or Investor.
And the outcome of their financial life depends greatly on which side they land on.
Here’s the thing. Many people live in a kind of purgatory between these two identities. You may think of yourself as an investor because you own stocks or mutual funds. But when you dig a little deeper, you may find that your mindset is much closer to that of a speculator.
Don’t believe me? Consider this. Last year, how concerned were you about the effect on your portfolios that the upcoming elections would have? Did you contact your advisor about inflation or interest rate hikes? Did you ask yourself (and others), “Should I sell now and get back in later when things look better?” That’s the speculator mindset creeping in—I find that even among clients who have been with us for years.
The distinction is simple:
Let me give you an example to highlight why this matters.
Imagine back in 1950, you handed $10,000 to an advisor; let’s just use our team member, Andy Martone, for the sake of this example. What would he have done with it? He would have done what he always does — invest it according to a long-term investing strategy and leave it alone to compound.
If that $10,000 had been invested in a diversified portfolio tracking the S&P 500, it would be worth around $38 million today. But that journey wasn’t smooth. Along the way, the market experienced 16 separate declines of at least 20%. On average, those downturns wiped out about a third of an investor’s capital, and they happened roughly every five years.
Now, imagine if you had approached that 75-year period with a speculator’s mindset. What if, during each of those 16 downturns, you tried to predict the bottom or time your re-entry? The chances of capturing the full $38 million would be slim to none.
Successful investors didn’t achieve those results by guessing market directions. They achieved them by sticking to their plan and not interrupting the power of compounding. They believed in long-term investments in well-run companies and the economy as a whole. And even when new technologies like the television, the personal computer, and artificial intelligence caused panic, they stayed the course.
Why Speculation Is So Tempting (and So Dangerous)
I understand why people are tempted to speculate. Who wouldn’t want to time the market perfectly? Who wouldn’t want to sell at the peak and buy at the bottom?
But here’s the truth. It can’t be done consistently. Even Warren Buffett and Charlie Munger admit that they don’t try to time the market. And if they can’t do it, what are the chances that our clients can?
Speculators are constantly reacting to the latest news. They hear about rising interest rates and think, “Maybe I should sell.” They hear about an upcoming election and think, “Maybe I should wait before investing more.” They see large stock price drops during periods of market volatility and call their advisors in a panic. But that kind of thinking leads to inconsistent and poor long-term results.
Investors, on the other hand, follow sound investment guidelines and act continuously on their plans. They don’t react to market events. They don’t let fear or greed dictate their decisions. They understand that by staying the course, they give themselves the best chance of success.
The Reality We Face (and the Role We Play)
Here’s the reality. Even our best clients can fall into the speculator mindset. Despite our advice, despite the plans we’ve built together, they can be tempted to react to the latest headline or economic report. And that’s where we, as advisors, come in.
Let me leave you with this analogy.
Vitamin C cannot be stored by the human body. Any long-term benefit requires constant and consistent supplementation. The same is true for investing. Acting continuously on a plan rather than reacting to market events is something human beings are fundamentally unable to do without us.
Our clients depend on us to understand this. Their financial future — and the future of their families — depends on our ability to keep them focused on a long-term investment strategy and away from the noise of the market.
We’re not just managing portfolios. We’re managing behavior and emotions. I am constantly reminding our team that if we forget that, we risk letting our clients fall into the purgatory of speculation, where long-term success becomes impossible.
Our job isn’t just to build plans — it’s to ensure our clients stick to them. And if we do that, we give them the greatest gift any advisor can offer — the ability to stay invested, stay disciplined, and achieve long-term financial success.
If you’re ready to become an investor or make sure your clients are investors instead of speculators, contact us. We are more than happy to share what we know and practice daily. Here is the book that started my journey - request a copy below.