When Not to Speculate

There are two times in life when you should not speculate: when you can't afford it, and when you can.
— Mark Twain

Speculation is on the rise in the markets in 2025. Notwithstanding a few who win a big payday, most will lose it all when markets turn, as gamblers inevitably do.

Despite his wise quote above, Twain himself was a failure as an investor. The printing company he invested in bankrupted him, his publishing house collapsed, and he was prone to throwing money into mining stocks, patents, and inventions that seldom paid off.

People often gamble not because they misunderstand the odds, but because they overweigh small chances of a large gain.
— Amos Tversky

Tversky and his friend and colleague Daniel Kahneman came up with Prospect Theory to explain irrational human economic choices. This quote refers to their insight that individuals tend to make decisions as if low probabilities are higher than they actually are. That leads to risky gambles in the hope of big gains.

This feature of human psychology helps explain why many investors are embracing a bitcoin play called "perpetual futures" or "perps" for short.

Perps now make up 94% of daily active Bitcoin futures contracts. They are leveraged bets on whether the price of Bitcoin will rise or fall. The exchange where you make this trade benefits in various ways, not least by charging you fees and penalties.

The promotion of such risky and sophisticated instruments to greedy yet vulnerable retail investors is sad. It again reveals that the financial industry is driven by profits rather than any duty of care for investors. (There are a few notable exceptions, like Vanguard.)

For more of Mark Twain's wisdom and humor, download an inexpensive Kindle version of his collected works, like this one.

If you want the fascinating story of Amos Tversky and Daniel Kahneman's research, read The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis. Or better yet, get a copy of Kahneman's mega best-seller, Thinking, Fast and Slow.

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