Stocks, Gambling, and Taking Risks in Small Doses

I like investing in stocks, and I have two methods. The first is to carefully research a company, its financials, its team, its market competition, and make an educated guess about future growth potential. The second is to get excited about something, like Netflix sponsoring new Arrested Development Episodes, J Crew’s new stadium cloth fabric, Design Within Reach’s fabulous furniture and penny-stock price, or Tempur-pedic’s insane stock crash, and just say, what the heck, I’m buying it. I like being risky, I like action, and I like taking chances.

With the first strategy, I’ve done pretty well in almost all cases. With the second, I’ve had some major wins and some catastrophic losses, and in the end probably broke even. I know the first way is the way to go, and the way to end up with a solid exponential growth retirement, but I have so much fun with the second, and end up learning a heck of lot along the way.

So the way I’ve dealt with this conflict is to invest the majority of my account the first way, and to set aside a certain, much much smaller chunk for the second. I fully realize that it’s entertainment money, and money I better be able to afford to lose. A weird, volatile, Israeli-founded tech stock? I’ll buy just a few shares so I can watch it and feel invested, but not lose my shirt. When it goes up 50%, great. It may head back down to -40% next week anyway. Obviously this isn’t the “right” way to do things, but if it keeps me away from my own retirement savings, then so be it.

Does anyone else have a taste for risk? Do you take steps to mitigate it, and if so, how?