The average holding period of a stock on S&P 500 has changed over time

In the 1950s and 1960s, investors typically held stocks for at least eight years. That’s sufficient time to properly see a business navigate through several phases of the economic cycle and long enough to allow real value to emerge. Today, that average holding period has shrunk to around five months. You can hardly argue that the average investor in this climate is buying into a business because they believe in its long-term strategy or value proposition. 

Instead, we’re seeing heightened levels of speculation across markets. Oil is a telling example. The daily trading volume of oil-related financial instruments is approximately 400 times greater than the actual value of oil produced globally each day. That gap is driven not by fundamentals, but by speculative activity. It’s the same reason authorities maintain strategic reserves – because oil is a crucial commodity for growth, and they cannot afford to be at the mercy of sentiment-driven price swings.

Crypto and MicroStrategy take speculation to the next level 

The crypto market – a newer generation commodity – takes this to the next level. If you compare the volume of bitcoin traded daily to what is produced through mining, the traded amount is 1 000 times greater. That’s not investing in an underlying asset - it's speculating on volatility.

Then there are businesses that extend this level of speculation even further. One such example is MicroStrategy, a listed business in the United States (US) that has made headlines for its large-scale bitcoin acquisitions. Through MicroStrategy, investors can gain exposure to bitcoin without holding the cryptocurrency directly. However, its market price now sits at roughly three and a half times its book value – essentially the value of the bitcoin it holds. By contrast, Growthpoint, a local property company with real, tangible assets on its books, trades at just 70 basis points to book value - that’s 0.7. The stark discrepancy tells you all you need to know about how sentiment can distort value.

To make matters even more extreme, investors can now access leveraged Exchange-Traded Funds (ETFs) tied to MicroStrategy. These offer triple exposure to the stock, which is itself a proxy for bitcoin. When a sentiment-driven asset becomes the foundation for even more leveraged speculation, the risks become exponential.

There are, of course, more “vanilla” examples. The surge of capital into private equity is a case in point. While not all private equity is speculative, one must ask: why are some businesses unable to access capital through traditional listings or bank finance? These conventional channels offer investor protections and require companies to meet certain standards. So, when businesses bypass these routes in favour of private capital, it should prompt some scrutiny.

Fear increasingly drives investment decisions

High-profile product launches and media buzz often captivate investors, even when valuations appear untethered from reality. Many of these companies are well-run and innovative, but the pricing of their stocks often reflects sentiment rather than cash flows. 
At the heart of speculative investing lies a tug-of-war between fear and greed. Historically, greed has been the dominant driver - chasing the dream of fast returns. But increasingly, we’re seeing fear enter the picture as investors try to navigate uncertain markets. Unfortunately, this fear doesn’t always lead to caution. Sometimes, it fuels the very behaviour that creates instability.

Speculation thrives in the absence of a well-defined plan. If you’re investing without clear goals, you’re more likely to be swept up by trends, noise and peer pressure. You might find yourself buying into something that looks exciting but has little to do with your long-term financial needs.

That’s why I strongly advocate for a well-engineered financial plan

Know what you’re saving for; understand what return you need and decide how much risk you’re willing to take. Once you’ve built that framework, every investment decision can be evaluated against it. Does this opportunity align with your goals? Does it fit within your risk profile? Is it a reliable contributor to your long-term strategy?

Let’s take bitcoin again as an example. It might offer high potential returns, but what happens if it doesn’t deliver? If your plan requires a 10% annual return to meet your retirement needs, how confident are you that bitcoin – or a stock leveraged to it – can deliver that consistently? More importantly, what are the consequences if it doesn’t?
There’s a statistic that’s often quoted: more than 90% of investors today are not on track to maintain their current lifestyle in retirement. Against that backdrop, can most people afford to speculate? I would argue that they cannot.

Ultimately, reliable returns require reliable instruments. If an investment promises 12% per annum, you want to be sure it delivers just that – not zero one year and 40% the next, with no predictability. That’s not a plan; that’s a gamble.

The temptation to speculate will always be with us. But a disciplined, goal-driven approach remains the best defence against market volatility, hype and poor decisions. Speculation might offer excitement, but for most investors, it’s not worth the risk of crashing and burning.

You can also listen to this podcast on iono.fm here.