Last summer, when oil prices were peaking and people were looking for reasons, it was popular to blame speculators. Many a chatroom comment went along the lines of “them speculators is runnin’ up the price of oil!” As you may notice, however, this line of reasoning is used for almost any item any time prices rise.
For example, Venezuela is blaming food supply shortages not on their own price control policies and central banking failures but on “unscrupulous speculators.”
Some local commentators in Charlottesville blame an increase in housing costs on house flippers.
Speculating is rooted in finding market mispricing and using that knowledge to profit. Hopefully. That’s it in a nutshell.
What people so often forget is that speculators can and do lose money frequently. For example, this guy lost money on Playstation 3 market speculation. He paid more for something than what it is worth. Now he’ll have to sell for whatever he can get, which will probably be less than retail resulting in a very good deal for a couple customers. The same thing will happen with anything when the people who aren’t good at speculating pay too much.
My soon-to-be employer is basically a speculator (more kindly referred to as energy trader or energy arbitrage). The company is very good at what it does and owns a sizable profit share of the markets in which it participates. Within those markets there are maybe 10 companies that consistently turn a profit. For each company making a profit, there are about 5 or 10 more losing money.
The point is that speculators only make money when they’re right.
