Firstly, choosing to invest for the long-term can be a very good choice with good very good rewards for the given individual investors who decides to undertake it, who decides to undertake it after good amount of research.
But interestingly, I have seen long-term investors describe their methods as the only rational allocation of capital in society, and that capital markets are somehow in need of long-term investors, because supposedly, they all will collectively make the best allocation of capital in society. I found these ideas to be very strange, because it seems certain stock market investors consider the benefit to a single individual investor to be the same thing as the benefit to society.
Such ideas, obviously, are the result of "normative" thinking and people's desire for a mystical sense of normalcy - which, in this case, is everybody benefitting from everybody investing for long-term. The problem with normative thinkers is that they never start by seeing why things are as they are, and what comes out of things being as they are.
The act of speculation may or may not see the speculator as the beneficiary - it's all up to the speculator to decide what he's going to do and how he's going to benefit from it. Now, normally, speculators are all those people who started buying shares of Amazon and Google before they showed a single profit, and had very bleak prospects. They were, very much, gambling. Financially educated people who calculate the net present values of companies, by projecting future performance based on past performance, would obviously not touch these companies, based on their rational analysis. And yet, we all can appreciate, as third parties, that the speculators have the incentive to keep buying the shares of such companies, because they can diversify between several companies, and take less risk on the whole by stacking up on the odds of having at least one company which will be successful. A large number of speculators buy up from the institutional holders of the stock (who would have bought them during the IPOs), so that those institutions make some profit, and relieve themselves of the risk of the stock. In this process, two parties have their interests met, because one group of people get their money and relieve their risk, and another group of people earn the chance to reap huge future rewards in return for taking up that risk. Furthermore, a large institutional holder which, in absolute numbers, may stand to lose millions of dollars, hands over its ownership to large number of smaller shareholders, each of whom stands to lose less money in absolute terms. For a small speculator to play around with $10,000 of his own savings is far more appropriate than a large company which stands to manage not only its own money, but that of many other outside depositors and outside investors, while having to also pay its own employees. It's a telling fact that large financial institutions focus more on minimizing risk and reducing losses, and all the speculative buyers are the best people to whom they can transfer the risk of a new untested company.
It's just as well that speculators stand to make enormous gains, once the companies they bought end up showing good financial results and start unveiling plans for new product launches among other things. This is where capital is transferred between serious long-term buyers and all the high-risk speculators; and in essence, the presence of those speculators who have already bought up shares help in increasing the trading volume of the shares - making not only the availability of the shares to be bought much easier, but also letting them be bought at a more reasonable price, because buyers would otherwise have had to make much much higher bids in order to compel the few willing shareholders to sell the shares to them.
Such speculative activity keeps going on all the time, and prices in the market turn in many directions from speculative activity, where speculators rush in to make the best possible bid right before the event that causes prices to soar happens. Millions are made this way, and no doubt, millions are also lost by speculators, who work on guesswork and intution rather than analysis. All the same, speculators like Jim Cramer, the head of an enormously successful hedge fund, have managed to make multibagger returns out of speculation, even showing 300% and 400% returns on certain stock. Of course, Cramer is notorious for having lost $90 million of his hedge fund once, and the fact that he could be making multibaggers for several years, and then end up losing $90 million later only proves that the risk of losing such money was always there. His honest and blatant speculative manner still ended up having him make $150 million for the fund a year later. The point is that speculators at a given point of time very well could be seeing miserable losses, and yet, on the whole, and the long run, they and other players in the market do make money.
On a similiar situation, you have short-term traders, who buy shares for the purpose of selling within the nearby period. Traders don't hold shares for more than six to eight weeks, normally, and have the aim of jumping in quickly and jumping out quickly. Their aim normally is to buy high and sell higher. If they make a loss, they quickly take it, so as to minimize it. Traders even program their trading systems to sell immediately to reduce their losses to 1% on any trade. SInce traders work on taking profits as quickly as they can, and cutting losses as quickly as they can, they are probably the most liquid players in the market. While speculators and investors keep buying and selling shares from time to time, the traders are the ones who sit back and see the trend of prices and act accordingly. A trader knows he may not necessarilly make money, but he quickly keeps cutting and taking his losses, and can keep doing indefinitely for a long time this way, until he makes the profit, and covers his losses. A significant number of people in the markets are short-term traders these days, and they collectively pull up volume in the areas where best prices are being offered, and then quickly jump away from stocks that start entering downtrend. The purpose of these traders is to make gains from the process of establishing prices in the market, and it is what gives an incentive for this process to continue.
Somehow, I don't see how the final result of allocation of capital in society by speculators and traders is any less rational or effective than what investors do, and I think it only proves the basic fact that all human exchange tantamounts to people creating as much benefit for each other as they can.