Is there any difference between speculative and fundamental trading? If so, which is more profitable? And which type of trader should you be?

The standard distinction is that fundamental trading looks at company balance sheets, and advocates that traders purchase sound companies in good businesses which are generating lots of profit. Speculative trading, however, pretty much describes anything that is not fundamental. However if you use that distinction then pure technical trading, arbitrage, event-driven and quantitative trading are all speculative because they do not involve looking at company fundamentals. Even if you don’t necessary know what “arbitrage” means, you would know that there are many many trading methods out there which do not fall neatly into either of these categories. In fact a successful trading system should take both elements into account (and more!).
So as you can see from the above, this distinction is not really helpful. For my own trading portfolios, I have decided to use the distinction “mechanical” vs “discretionary”. My “Mechanical” portfolio will be objective and operate within set parameters or criteria, and is where I put 70% of my cash for my manager to run. It will involve looking at the company scorecard and evaluating company balance sheets and earnings reports. The only opinion which this will involve would be a view over the company’s future business prospects. Because such a system is mechanical, the stock picks for this portfolio can be evaluated objectively and the portfolio can be monitored easily.

My “discretionary” portfolio, however, will be a different beast altogether. Stock picks in this sector will be made not according to whether the company is good or not, but according to whether a company’s stock price is the most likely to rise to a much higher level. Whilst in the long run, one will necessarily lead to another, in the shorter term this is not always the case. And that is because in the short term prices are driven by imperfect information, and a discretionary system aims to exploit these discrepancies in order to produce spectacular gains. This is the holy grail of trading and extremely difficult to do. It requires a trader to understand ’short-term market dynamics’ i.e. what is hot and what is not. One of the tools I will therefore be using is technical anaysis to spot breakouts. However that will also be backed up by what I call supporting evidence, which are things like - how much press coverage it is receiving, how much volumes have been increasing, recent events which have just changed the fortunes of the company etc. etc. In short, I am trying to look for sharks and ride in their wake. This will require immaculate timing (especially for exits!) to make sure I don’t get bitten.
Now in this portfolio I expect to be wrong frequently. In fact, more often then I am right. But I do expect my correct choices to rocket up and wipe out my losses. If you plot a graph of this portfolio you will not see it go up in a straight line. It will most likely stay still or slide down for a long time and then shoot up suddenly for a while and then stagnate again. It will require extreme amounts of patience and can be frustrating. Most of the time I will also probably feel like giving up (in fact, most traders and writers recommend that you do not trade like this, or at least only do this with a small amount of capital relative to your savings.).

As you can see, this is a very subjective system and is also extremely difficult to monitor and evaluate. If successful, it is also a system I would want to be in my hands. Not my managers. And this is why I have decided the only person who can and should be doing this is me. Over the next few months I will be working on establishing a system and posting more thoughts on this,