The job of a judge or juror is to impartially weigh the evidence and
arguments put forward by both sides in an effort to determine which side has
the stronger case. The job of a lawyer is to argue for one side, regardless
of whether that side happens to be right or wrong. As a speculator it is
important to think like a judge or a juror, not a lawyer.
Unlike a lawyer, a speculator can change sides ‘mid-stream’ if necessary
to keep himself on the side favoured by the current evidence. There is no
need for him to stick to a position come what may. However, changing sides is
easier said than done, which is why so many speculators and commentators
aren’t able to do it. Rather than let the evidence determine their stance,
they adopt a stance and then look for confirming evidence. If they come
across conflicting evidence, they downplay it. They aren’t aware of it, but
their goal is to prove a particular case rather than align themselves with
the strongest case.
Sometimes the case that a speculator desperately wants to prove also
happens to be the case supported by the strongest evidence, enabling him to
make large gains. However, if he continues to think like a lawyer he will
eventually run into the problem that the weight of evidence shifts. After the
inevitable shift happens he will steadfastly maintain his earlier position
and lose whatever advantage he previously gained from being on the right side
of the market.
In my speculations and financial-market writings I’m sometimes guilty of
thinking like a lawyer. That’s why I developed the gold model (the Gold True
Fundamentals Model – GTFM) that was discussed
in a blog post last month. This model prevents my own biases and opinions
from getting in the way when assessing whether the fundamental backdrop is
bullish or bearish for gold.
The bottom line is that there is never a requirement for a speculator to
defend a position. Unlike a lawyer, he is free to change with the evidence.
