If you’ve ever watched The show “Mad Money” on CNBC, you may have heard the term “spec”, which is short for speculative investing.
A speculative investment is when you buy shares in company that is unproven, which makes its future uncertain.
A good example would be a developmental biotechnology company. Most speculative biotech companies’ fortunes depend on their ability to create a drug that can successfully treat a disease. If their clinical trials show results, they may receive FDA approval to commercialize their drug. However, the odds of FDA approval for most drugs are low, so these investments come with a great deal of risk.
I think every investor should have at least one spec in their portfolio. Just make sure you don’t overload your portfolio with them.
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