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 non stop 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 favour.
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 favourite 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.
Extracted article from http://www.caseyresearch.com/articles/doug-caseys-9-secrets-for-successful-speculation-1
Extracted article from http://www.caseyresearch.com/articles/doug-caseys-9-secrets-for-successful-speculation-1
(http://sharemarket-srilanka.blogspot.co.uk/)
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