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.
Final
Point
These are the principles I live and breathe every day as a speculator.
The devil, of course, is in the details, which is why I’m happy to be the
editor of the Casey International Speculator, where I can cover the ins and outs of all of the above in depth.
Right now, we’re looking at an opportunity the likes of which we
haven’t seen in years: thanks to the downturn in gold—which now appears to
have subsided—junior gold stocks are still drastically undervalued.
My team and I recently identified a
set of junior mining companies that we believe have what it takes to
potentially become 10-baggers, generating 1,000%+ gains. If you don’t yet
subscribe, I encourage you to try the International Speculator risk-free today and get our detailed 10-Bagger List for 2014 that tells you exactly why we think these
companies will be winners. Click
here to learn more about the 10-Bagger List for 2014.
Whatever you do, the above
distillation of Doug’s experience and wisdom should help you in your own
quest.
