The "Art of Speculation" written by the Wall Street legend is primarily meant as a reminder to would be speculators that there is no such thing as an easy ride in the market and rewards only come through sustained and original effort. The principles he expounds in the book are meant as much for the long-term investor as for the speculator (to whom he describes and refers to in a more sophisticated manner than is commonly understood and distinguishes them from the day traders who are more commonly understood to be speculators). Philip Carret was the man behind the immensely successful Pioneer Fund in the US, and an investor with a formidable track record demonstrated in the returns the fund gave.

Like all truly successful investors, he shows a remarkable ability to both assess and more importantly quantify risk. This point is subtly made through the book as he talks in terms of "having theodds in your favour before making an investment decision". He also brings out his inherent dislike of short-selling as a matter of course, and especially by novices. He says, "if an amateur decides to leave short-selling to those who make speculation their business, it is likely to be a profitable decision." It is this obsession with understanding and quantifying risk in every transaction which brings him to conclude that day trading or "in and out" speculation based on the technical position of the scrip is risky at best, and that a daily trader would have to be right two thirds of the time to just break even and would have to be right 75 per cent of the time to make money, a very demanding risk-reward ratio. This is a good example of having the odds stacked against you and it has been found that less than 5 per cent of such speculators end up making any money, "The graveyards of Wall Street are littered with short-sellers," writes Carret.

He offers a better alternative to short-term speculation. He saysthat to be really successful in the market calls for far fewer decisions to be made and under much less risky and stressful conditions than what the day trader encounters. He illustrates an example whereby a speculator needed to make just eight decisions over a 16-year period that eventually yielded a return that beat the market by a significant margin. What was required was a learned understanding of major changes in trend and then riding on that trend. But this premise and the example that he provided involved selling out at or near the market tops and not leveraging that position by going short. He rightly sketches the typical mindset of a short-term speculator as a person who quickly takes a profit, but lingers over losses, which only results in compounding losses. His strategy of making money in the market is based on the above observation and is what he calls a long-pull speculation.

He is unlike many other authors on this subject, who try to demarcate in absolute terms what consists of investmentand what is speculation. Or that speculation and gambling are one and the same thing. Carret, while drawing a distinction, is also careful to point out that all investments have an element of speculation, for there is always a degree of risk present and even the stocks that eventually turn out to be winners are fraught with uncertainty. Though he says there is a thin line distinguishing speculation from gambling, he is clear the two are different. Speculation should be the result of an intellectual exercise designed to act as an eventual guide to investors as to the prospects of a firm, which also results in increases or decreases in liquidity in a targeted stock.

The book also is a good read for fence-sitters or rather for people who like to say "we'll invest when things clear up a bit". Carret's observation is that there was never a time when every possible circumstance favoured a rise in securities' prices, nor on the other hand, a time when every possible circumstance favoured a bear market. The mostthat can be said is that the balance of factors favours an upward or a downward movement.

In sum, what Carret says is that the requirement for being successful as a long-pull speculator requires a lot of courage, conviction, capital and sound judgement, all of which has to come from the speculator himself.