Are you an opportunist or a speculator?

​​What’s the difference? Opportunists have a plan. Speculators don’t.

If you want to separate the speculators from the opportunists, all you have to do is look at the market. The speculators are the ones who go with the crowd. The opportunists go against the grain.

Speculators are:

  • Driven by emotions and not by data.
  • ​Get excited about the thrill of the hunt just like the thrill they get out of gambling.
  • ​Follow the herd – propelled by FOMO (the fear of missing out).

​​Right now, speculators are chasing stocks and Bitcoin – driving both to record levels but unsupported by any real underlying economic fundamentals.

You’re probably thinking, “But doesn’t fortune favor the bold?” Yes, but fortune favors the bold who have a plan. There’s nothing wrong with getting out of your comfort zone as long as you stick to the sound economic fundamentals or investment goals you’ve always lived by.

Take Warren Buffett for example…

​​Throughout his investing career, he has famously avoided tech stocks like the Facebook and Twitters of the world. He doesn’t like tech stocks because he believes it’s difficult to reliably pick winners and he doesn’t trust valuations. Prices of tech stocks are often influenced by factors that have nothing to do with underlying business performance.

Despite Buffett’s aversion to tech stocks and sticking to traditionally old-school but profitable investments like insurance and railroads, lately, he has changed his tune. Buffett’s gotten out of his comfort zone but stuck to his investment principles. And the one tech stock that has drawn him in is Apple.

Buffett’s company Berkshire Hathaway has invested about $35 billion into the iPhone maker between 2016 and 2018, securing a roughly 5.5% stake.

​​The bet has paid off as Apple’s climbing stock price more than doubled the value of Berkshire’s position to about $72 billion at the start of 2020, then boosted it to $109 billion by the end of September. Incredibly, Apple made up almost 48% of the value of Berkshire’s $229 billion stock portfolio at the end of September.

So what changed Warren Buffett’s tune on tech stock that he would go almost all-in on something like Apple? He was willing to go out of his comfort zone with Apple because he looked at the economic fundamentals and Apple fit within his core beliefs. 

Buffett likes to invest in companies that possess an “economic moat” – competitive advantages companies must have to remain profitable over the long haul. This is what he had to say about economic moats:

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”

“The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

Interestingly, Warren Buffett made a killing on a company by stepping out of his comfort zone by investing in Apple without betraying his core investing beliefs.

​​It’s also interesting that Apple also hit new levels of profits and cultural significance by stepping out of its comfort zone – by expanding beyond its core computer business and revolutionizing the mobile phone industry with the game-changing iPhone.

On the surface, you would think Apple went completely outside its comfort zone, but if you delve deeper, you’ll realize that with the iPhone Apple stuck closely to founder Steve Job’s guiding principles of offering elegant consumer electronics to the masses that “just work”.

Fortune favors the bold who are willing to step out of their comfort zone. It favors opportunists driven by a plan, not speculators driven by emotions.

Are you willing to take advantage of new opportunities that on the surface don’t resemble assets in your investing track record but at their core match your investing principles?

It’s perfectly fine to pass on fads like overpriced stocks and Bitcoin, but don’t pass on something outside of your comfort zone if those opportunities fit within your investing philosophy.

Apple, Amazon, and Warren Buffett would all be different if they had stuck to just their bread and butter. Now, they can have their cake and eat it too.