When
I started working for Doug Casey almost 10 years ago, I probably knew as much
about investing as the average Joe, but I now know that I knew absolutely
nothing then about successful speculation.
Learning
from the international speculator himself—and from his business
partner, David Galland, to give credit where due—was like taking the proverbial
drink from a fire hose. Fortunately, I was quite thirsty.
You
see, just before Doug and David hired me in 2004, I’d had something of an
epiphany. As a writer, most of what I was doing at the time was grant-proposal
writing, asking wealthy philanthropists to support causes I believed in. After
some years of meeting wealthy people and asking them for money, it suddenly
dawned on me that they were nothing like the mean, greedy stereotypes the
average American envisions.
It’s
quite embarrassing, but I have to admit that I was surprised how much
I liked these “rich” people—not for what they could do for me, but
for what they had done with their own lives. Most of them started with nothing
and created financial empires. Even the ones who were born into wealthy
families took what fortune gave them and turned it into much more. And though
I’m sure the sample was biased, since I was meeting libertarian millionaires,
these people accumulated wealth by creating real value that benefited those
they did business with. My key observation was they were all very serious about
money—not obsessed with it, but conscious of using it wisely and putting it to
most efficient use. I greatly admired this; it’s what I strive for myself now.
But
I’m getting ahead of myself. The reason for my embarrassment is that my
surprise told me something about myself; I discovered that I’d had a bad
attitude about money.
This
may seem like a philosophical digression, but it’s an absolutely critical
point. Without realizing that I’d adopted a cultural norm without conscious
choice, I was like many others who believe that it is unseemly to care too much
about money. I was working on saving the world, which was reward enough for me,
and wanted only enough money to provide for my family.
And
at the same instant my surprise at liking my rich donors made me realize
that—despite my decades of pro-market activism—I had been prejudiced against
successful capitalists, I realized that people who thought the way I did never
had very much money.
It
seems painfully obvious in hindsight. If thinking about money and exerting
yourself to earn more of it makes you pinch your nose in disgust, how can you
possibly be effective at doing so?
Well,
you can’t. I’m convinced that while almost nobody intends to be poor, this is
why so many people are. They may want the benefits of being rich, but they
actually don’t want to be rich and have a great mental aversion to thinking
about money and acting in ways that will bring more of it into their lives.
So,
in May of 2004, I decided to get serious about money. I liked my rich friends
and admired them all greatly, but I didn’t see any of them as superhuman. There
was no reason I could not have done what any of them had done, if I’d had the
same willingness to do the work they did to achieve success.
Lo
and behold, it was two months later that Doug and David offered me a job at
Casey Research. That’s not magic, nor coincidence; if it hadn’t been Casey, I
would have found someone else to learn from. The important thing is that had
the offer come two months sooner, being a champion of noble causes and not a money-grubbing
financier, I would have turned it down.
I’m
still a champion of noble causes, but how things have changed since I enrolled
in “Casey U” and got serious about learning how to put my money to work for me,
instead of me having to always work for money!
Instead
of asking people for donations, I’m now the one writing checks (which I believe
will get much larger in the not-too-distant future). I can tell you this is
much more fun.
How
did I do it? I followed Doug’s advice, speculated alongside him—and took
profits with him. Without getting into the details, I can say I had some
winning investments early on. I went long during the crash of 2008 and used the
proceeds to buy property in 2010. I took profits on the property last year and
bought the same stocks I was recommending in the International
Speculator last fall, close to what now appears to have been another
bottom.
In
the interim, I’ve gone from renting to being a homeowner. I’ve gone from being
an investment virgin to being one of those expert investors you occasionally
see on TV. I’ve gone from a significant negative net worth to a significant
nest egg… which I am happily working on increasing.
And
I want to help all our readers do the same. Not because all we here at Casey
Research care about is money, but because accumulating wealth creates
value, as
Doug teaches us.
It’s
impossible, of course, to communicate all I’ve learned over my years with Doug
in a simple article like this. I’m sure I’ll write a book on it someday—perhaps
after the current gold cycle passes its coming manic peak.
Still,
I can boil what I’ve learned from Doug down to a few “secrets” that can help
you as they have me. I urge you to think of these as a study guide, if you
will, not a complete set of instructions.
As
you read the list below, think about how you can learn more about each secret
and adapt it to your own most effective use.
Secret #1:
Contrarianism takes courage.
Everyone
knows the essential investment formula: “Buy low, sell high,” but it is so much
easier said than done, it might as well be a secret formula.
The
way to really make it work is to invest in an asset or commodity that people
want and need but that for reasons of market cyclicality or other temporary
factors, no one else is buying. When the vast majority thinks something
necessary is a bad investment, you want to be a buyer—that’s what it means to
be a contrarian.
Obviously,
if this were easy, everyone would do it, and there would be no such thing as a
contrarian opportunity. But it is very hard for most people to think
independently enough to risk hard-won cash in ways others think is mistaken or
too dangerous. Hence, fortune favors the bold.
Secret #2: Success
takes discipline.
It’s
not just a matter of courage, of course; you can bravely follow a path right
off a cliff if you’re not careful. So you have to have a game plan for risk
mitigation. You have to expect market volatility and turn it to your advantage.
And you’ll need an exit strategy.
The
ways a successful speculator needs discipline are endless, but the most
critical of all is to employ smart buying and selling tactics, so you don’t get
goaded into paying too much or spooked into selling for too little.
Secret #3: Analysis
over emotion.
This
may seem like an obvious corollary to the above, but it’s a point well worth
stressing on its own. To be a successful speculator does not require being an
emotionless robot, but it does require abiding by reason at times when either
fear or euphoria tempt us to veer from our game plans.
When
a substantial investment in a speculative pick tanks—for no company-specific
reason—the sense of gut-wrenching fear is very real. Panic often causes
investors to sell at the very time they should be backing up the truck for
more.
Similarly,
when a stock is on a tear and friends are congratulating you on what a genius
you are, the temptation to remain fully exposed—or even take on more risk in a
play that is no longer undervalued—can be irresistible. But to ignore the
numbers because of how you feel is extremely risky and leads to realizing
unnecessary losses and letting terrific gains slip through your fingers.
Secret #4: Trust
your gut.
Trusting
a gut feeling sounds contradictory to the above, but it’s really not. The point
is not to put feelings over logic, but to listen to what your feelings tell
you—particularly about company people you meet and their words in press
releases.
“People”
is the first of Doug Casey’s famous Eight Ps of
Resource Stock Evaluation, and if a CEO comes across like a used-car salesman,
that is telling you something. If a press release omits critical numbers or
seems to be gilding the lily, that, too, tells you something.
The
more experience you accumulate in whatever sector you focus on, the more acute
your intuitive “radar” becomes: listen to it. There’s nothing more frustrating
than to take a chance on a story that looked good on paper but that your gut
was warning you about, and then the investment disappoints. Kicking yourself is
bad for your knees.
Secret #5: Assume
Bulshytt.
As
a speculator, investor, or really anyone who buys anything, you have to assume
that everyone in business has an angle. Their interests may coincide with your
own, but you can’t assume that.
It’s
vital to keep in mind whom you are speaking with and what their interest might
be. This applies to even the most honest people in mining, which is such a
difficult business, no mine would ever get built if company CEOs put out a
press release every time they ran into a problem.
A
mine, from exploration to production to reclamation, is a nonstop flow of
problems that need solving. But your brokers want to make commissions, your
conference organizers want excitement, your bullion dealers want volume, etc.
And, yes, your newsletter writers want to eat as well; ask yourself who pays
them and whether their interests are aligned with yours or the companies they
cover.
(Bulshytt
is not a typo, but a reference to Neal Stephenson’s brilliant novel, Anathem, which defines the term, briefly, as words, phrases, or
even entire books or speeches that are misleading or empty of meaning.)
Secret #6: The
trend is your friend.
No
one can predict the future, but anyone who applies him- or herself diligently
enough can identify trends in the world that will have predictable consequences
and outcomes.
If
you identify a trend that is real—or that at least has an overwhelming amount
of evidence in its favor—it can serve as both compass and chart, keeping you on
course regardless of market chaos, irrational investors, and the ever-present
flood of bulshytt.
Knowing
that you are betting on a trend that makes great sense and is backed by hard
data also helps maintain your courage. Remember; prices may fluctuate, but
price and value are not the same thing. If you are right about the trend, it
will be your friend. Also, remember that it’s easier to be right about the
direction of a trend than its timing.
Secret #7: Only
speculate with money you can afford to lose.
This
is a logical corollary to the above. If you bet the farm or gamble away your
children’s college tuition on risky speculations—and only relatively risky
investments have the potential to generate the extraordinary returns that
justify speculating in the first place—it will be almost impossible to maintain
your cool and discipline when you need it.
As
Doug likes to say; it’s better to risk 10% of your capital shooting for 100%
gains than to risk 100% of your capital shooting for 10% gains.
Secret #8: Stack
the odds in your favor.
Given
the risks inherent in speculating for extraordinary gains, you have to stack
the odds in your favor. If you can’t, don’t play.
There
are several ways to do this, including betting on People with proven track
records, buying when market corrections put companies on sale way below any
objective valuation, and participating in private placements. The most critical
may be to either conduct the due diligence most investors are too busy to be
bothered with, or find someone you can trust to do it for you.
Secret #9: You
can’t kiss all the girls.
This
is one of Doug’s favorite sayings, and though seemingly obvious, it’s one of
the main pitfalls for unwary speculators.
When
you encounter a fantastic story or a stock going vertical and it feels like
it’s getting away from you, it can be very, very difficult to do all the things
I mention above. I can tell you from firsthand experience, it’s agonizing to
identify a good bet, arrive too late, and see the ship sail off to great
fortune—without you.
But
if you let that push you into paying too much for your speculative picks, you
can wipe out your own gains, even if you’re betting on the right trends.
You
can’t kiss all the girls, and it only leads to trouble if you try. Fortunately,
the universe of possible speculations is so vast, it simply doesn’t matter if
someone else beats you to any particular one; there will always be another to
ask for the next dance. Bide your time, and make your move only when all of the
above is on your side.
http://www.caseyresearch.com/cdd/doug-caseys-9-secrets-for-successful-speculation
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