Owning the best speculative stocks in your diversified portfolio can boost your returns if selected carefully. Learn how in this article now.

A speculative stock is a higher-risk, more aggressive stock with uncertain prospects. Speculative stocks may offer significant returns to investors—but they will also have risk to match.

When investing in the best speculative stocks, limit speculative holdings to a smaller part of your overall portfolio. Also, focus on investment quality as much as possible when looking for aggressive stocks with the potential for higher returns.

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Fire & Flower Holdings Corp., symbol FAF on Toronto, is a speculative buy

Through the stock, investors tap the company’s more than 100 cannabis and accessories stores in B.C., Alberta, Saskatchewan, Manitoba, Ontario and the Yukon.

Fire & Flower’s alliance with Alimentation Couche-Tard, which operates 12,264 convenience stores across North America and Europe, continues to help the pot seller expand and add value for investors.

In August 2019, Couche-Tard invested $25.9 million in Fire & Flower. Couche-Tard also bought convertible debentures in Fire & Flower stock and received warrants to buy shares. Couche-Tard recently exercised warrants that increased its interest in Fire & Flower by 14.49%, to 35.32%, from 20.83%. The remaining debentures and warrants, if exercised, would bring its total interest in the company to 50.1%.

Meanwhile, the two companies further strengthened their relationship, when Fire & Flower announced Stéphane Trudel was recently appointed its CEO. Trudel was previously Senior Vice President of Operations for Couche-Tard. He was initially appointed as a director of Fire & Flower in June 2020 and serves as a member of the audit committee and corporate governance and compensation committee of the company’s board of directors.

We think you should be encouraged by Couche-Tard’s investment—plus now management expertise—and its ability to help Fire & Flower add new stores and gain market share in Canada’s cannabis market. Fire & Flower is a speculative buy for highly aggressive investors only.

Venture-capital investing can involve speculative stocks—but they often get in first on the best ones

Successful venture capitalists tend to have a record of success in business and in investing. Thanks to their proven ability, they can move quickly when they spot a worthwhile opportunity. Since they raise money from institutions, corporations and wealthy individuals, they can operate as a private company. All this relieves them of a large amount of legal and regulatory issues that they’d have to go through to raise money from public investors.

But for individuals, before you buy speculative stocks that claim to have a business plan with Uber-scale potential, ask yourself this: Why would the plan’s creator offer it to individuals, with all the accompanying regulatory burden? In most cases, it’s because they’ve already tried to interest the top venture capital funds, and nobody was buying.

Holding aggressive—but not speculative—investments in your portfolio

You may invest in more companies that are less well-established, compared to choices that would appeal to a conservative investor. But you’ll want to stay away from the most highly speculative types of aggressive investments. For instance, you’ll want to avoid loading up on “penny mines” (speculative mining stocks that have not yet proven they have a mineral deposit that can be mined at a profit). You’ll also want to stay away from “concept stocks.” Those are junior companies that have a business plan but have yet to actually establish a business, much less make a profit or pay any dividends. Stocks like these expose you to a serious risk of total loss. You find a lot of these kinds of concept stocks in the technology industry.

Use our “sell-half” rule, even with the best speculative stocks to buy, and profit more over time

Knowing when to sell a stock is one of the most important factors in successful investing—it’s almost as important as knowing when not to sell. That’s why we advise investors to follow a key rule when it comes to rising stocks.

Selling half of your hot stocks that surge helps you guard your profits. But apply this rule to more aggressive stocks only, and not to the well-established stocks that may surprise you by going a lot higher in the long run.

Whether your approach to investing is conservative or aggressive, the quality of your investments matters much more than your skill at selling.

However, you should be quicker to sell aggressive stocks than conservative ones. With stocks we rate as “Speculative” or “Start-up,” it pays to apply our sell-half rule. That’s when you sell half of a stock that doubles in price.

Use our three-part Successful Investor approach for all of your investments, including the best speculative stocks

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

What percentage of your portfolio do you devote to the best speculative stocks?

If you hold any speculative stocks, how have they performed for you over time?