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.