Doug Casey on How You Can Think and Act Like a Professional Speculator

International Man: What personal and psychological blind spots and limitations should a speculator be wary of?

Doug Casey: There is no question that your biggest enemy in the markets is your own psychology.

Everybody suffers from fear when the market is down and greed when the market is up. It’s a matter of getting out of your own head and trying to be objective.

The market doesn’t care what you paid for a stock, bond, or piece of real estate. If you’re underwater, your emotions are wired to tell you to hold on until you can “get out even.” That’s how small losses turn into big losses. If you have a profit, your emotions may tell you to grab it and run before it disappears, which precludes you from ever hitting a long-ball homer or getting a 10–1 shot. You have to be aware of your emotions. They’re not your friends.

What other people do and what the government does create opportunities. Wild fluctuations in the market are scary, but they’re not the problem. The problem is how you react to them—that is, your psyche. For that reason, some people just don’t belong in the market, which will be a real problem over the coming decade as the dollar will lose value rapidly and businesses will flounder.

I expect general financial, economic, and social conditions to be scary and unpleasant in the coming years. They’ll be very tough to navigate for people who don’t have a grounding in economics and the markets.

For one thing, we’ll see the moral and intellectual battle intensify between free marketeers and statists, between capitalists and socialists. I’m an anarchocapitalist, with very well-defined views on these matters. But it’s important not to confuse ideology with investment. A socialist sees government intervention as “good,” a libertarian sees it as “bad,” but a speculator doesn’t clutter his mind with opinions. A speculator doesn’t pass moral judgment on the way things are. He tries to maintain a scientific “value free” approach. His object is to make money, not make a political statement.

International Man: You’ve often discussed the big picture trends currently taking shape—the decline of the US Empire, the political and social decadence in the West, and the “woke” takeover of businesses.

As a well-known and skilled speculator, do you see any specific distortions or opportunities emerging as a result of this today?

Doug Casey: During this decade, just about every country in the world is going to destroy their currency. All governments and the big banks are in the same position. The US is no exception, unfortunately.

Neither governments nor banks are solvent or reliable today. They’re like a couple of drunks holding each other up at this point. They’re doing it by creating tons of paper (or digital) fiat money out of thin air. You have to be bearish about currencies, including the dollar. Very bearish about bonds. And bearish about stocks in general.

Now is the time to be bullish about commodities in general, and especially bullish about monetary commodities.

International Man: Baron Rothschild knew how to profit from the politically created chaos of the Napoleonic era.

Today, how does an experienced speculator emerge wealthier through and after a crisis?

Doug Casey: The most important thing is political diversification.

Most people have all their assets, investments, and attention in the country where they live.

That’s a mistake, as the Russians found out 100 years ago, the Germans found out in the 1930s and 40s, the Chinese in the 1950s, the Cubans in the 1960s, and the Vietnamese in the 1970s, just to name a few well-known examples. Everybody in the backward countries of South America, Asia, and Africa gets an education in political, social, and economic chaos every few years when their government changes. Americans should pay attention to how quickly things can change. The spectre of Marxism is stalking the West.

As great as the financial and economic risks are today, however, the biggest risks are political. That’s why it’s very important to diversify politically and geographically if you can.

In this coming decade, some speculators will make huge fortunes, but it won’t be easy since it’s cyclically time to eat the rich. Governments are going to try to take what you make away from you. Millions of people suffering from a serious decline in their standard of living are going to be envious and resentful. It’s not going to be a good time to show off expensive toys; put the Lambo in the garage and leave it there.

Profits are important but secondary. The important thing in this decade is just to keep what you have. As Richard Russell said, “During a depression, everybody loses; the winner is just the person who loses the least.” He was absolutely right.

I think this decade is going to go down in the history books as the decade of the “Greater Depression.” Fear and greed—mostly fear—will rule once the current bull market in financial assets comes to an end. You’re going to feel both most of the time. This is a decade to concentrate on keeping what you have more than anything else.

Just keeping what you have will put you ahead of most other people.

International Man: Presuming you have identified a ripe speculative opportunity, how do you deal with the issue of timing the entry and exit of the trade?

Doug Casey: If you find a great opportunity, don’t jump in all at once. You don’t know for sure how low or high something can go when you’re selling.

The best methodology is to buy things in stages or tranches. When you first see the opportunity, if it looks really right, buy a quarter of it. Wait for a period of time—it could be a few days, a few weeks, or a few months—and buy a second tranche. It’s a disciplined and practical way of keeping your emotions under control.

Even if it seems you’ve discovered something that looks like gold in 1971, a “sure thing” speculation, don’t bet the farm on any one thing. There’s often a reason that you can’t see why something’s really cheap. As inflation picks up and the markets get more chaotic, we’ll all be tempted to make wild bets to keep up and not fall behind.

Let me repeat: Make sure you don’t lose capital. You can’t be a capitalist without capital.

Via International Man