Speculation is usually only successful when it is in line with the fundamentals

Speculators are often unfairly criticised. The market needs them. Speculators add important liquidity.

Those who invest in small stocks will know. Often these stocks would not have much daily turnovers if it were not for speculators. The longer term holders of these stocks do not buy or sell very often. For those wishing to find buyers or sellers of these stocks, it is a great benefit to have speculators as they are more active.

Speculators also play an important role in taking over risk that others don't want. Wheat farmers, may sell their crop well before harvest at a fixed price for a future delivery date. That way, they can remove the risk that there is a bumper season and an oversupply that forces prices lower.

Speculators are often criticised for pushing prices to unrealistic levels. This argument is flawed. In fact, speculators are usually punished when they do this, because if they are wrong about the real values, they are usually the big losers. The tech boom and bust, where perhaps it was speculators who drove prices to very high levesl, is a great example. Most of them paid very heavily when market prices crashed to a fraction of the higher levels. Though what a great opportunity it was for the more savvy investors to sell near the highs.

So, speculation is usually only successful when it is in line with the fundamentals, and when it is pushing prices to a level that more closely reflects fair value.