By Doug Casey
January 24, 2025
International Man: Let's begin by defining our terms. How would you define a speculator?
Doug Casey: The word "speculator" is generally misused and poorly defined. Let's put it in context, along with some related terms that it's usually confused with.
First, what is a speculator? A speculator is someone who capitalizes on distortions in the market. These distortions are mostly caused by the actions of government, so most are political in nature. But distortions can also be caused by natural disasters or aberrations of public psychology.
A speculator is quite different from an investor. An investor is someone who allocates capital to create more capital. Being an investor is analogous to being a farmer who plants a grain of wheat to grow a sheaf of wheat. Investors are oriented to create value. Speculators, however, are less interested in creating new wealth and more interested in arbitraging the difference between perceptions and reality.
Speculators are also confused with traders. A trader is one who tries to second-guess the market. It's possible, and there are some very successful traders. But they're very few and far between. That's because traders have to fight against bid-ask spreads and commissions when they both buy and sell. That's compounded by the fact that "traders" are constantly trading and getting eaten up by those costs. Even more important, retail traders have to deal with the fact that they're last in line to get information, way after the big boys and the professionals have taken advantage of it; very few amateur traders understand that. Last, and probably most important, traders are in an eternal battle with their own psychology, constantly being pulled hither and yon by fear and greed. Trying to be a trader is generally a poor idea.
The public-who know almost nothing about speculating, investing, trading, or gambling-also conflate speculators with gamblers. They're very different. A gambler doesn't research trends, fundamentals, or anything else. He simply bets on tips, rumors, or uninformed gut feelings, hoping to get lucky. Sometimes random chance does just that. But just as in a casino, the house always wins, and the gamblers always lose in the long run.
We should also examine the saver. The capital employed by investors, speculators, traders, or gamblers only exists because of savers. A saver is someone who produces more than he consumes and sets aside the difference. That creates capital. Without capital, we'd be consigned to a life of grubbing for roots and berries.
Unfortunately, in today's world, savers have few alternatives to saving with their national currency. All are fiat units which are being systematically destroyed by central banks while held in commercial banks run on fractional reserve principles. Unless he saves in gold (or, arguably, Bitcoin), the poor saver has the odds tilted against him. That's bad for the saver and potentially catastrophic for society.
But that's a story for another day...
International Man: Why do you believe learning to speculate is crucial in today's environment?
Doug Casey: If we lived in a free market world, there would be no politically caused distortions, and speculators would be largely unemployed. But government intrudes everywhere in today's economy, constantly misallocating capital and creating distortions. On the bright side, however, speculators can prosper by looking out for these distortions.
As government grows bigger and more powerful, supporting the elites and other parasites, investing becomes harder and less profitable. These things make the world's economy ever more arbitrary, and an investor needs a certain amount of predictability. But the very things that make investing harder and less profitable are, perversely, the things that a speculator thrives on. This is, for instance, why gold has always been a favorite of speculators. Not just in 1933 and 1971, years of major dollar devaluations (unpredictable to the public, although quite predictable to competent economists and speculators), but whenever there's uncertainty.
Most people dislike speculators because they typically show up when things are grim and chaotic. They're often blamed for causing the problem as opposed to solving the problem.
For instance, during a famine, a foresighted speculator might buy bread in advance and then show up to sell it for much higher prices. Instead of being praised for making the bread available when it's needed, he's cursed for causing higher prices. He's actually holding prices down by making bread available. This predictable ingratitude on the part of the public might make a speculator rather cynical.
International Man: What are the key aspects of mastering the art of speculation?
What skills and perspectives are essential for a speculator to achieve success?
Doug Casey: It's important to have a broad range of knowledge to allow you to identify opportunities whenever and wherever they occur.
A speculator should be well-read in history so he's able to identify history rhyming, if not repeating. He should have a good grip on mass psychology so he can identify when the public is acting like lemmings. A speculator needs an understanding of economics, allowing him to diagnose the way the world really works and pinpoint the stupid things that governments do. He takes these subjects out of the realm of airy academic theory and makes them useful in the most practical way.
On a personal basis, a speculator should be unemotional. He doesn't get carried away with any particular position. Warren Buffett says the ideal holding time for an investment is "forever"; that's impossible for a speculation. Speculators should have a certain degree of cynicism to insulate them from what the crowd says and believes. It's hard to pass off a speculator as a "man of the people"; socialists, stupidly, believe he's an "enemy of the people."
International Man: Speculation can involve significant risk. How do you define acceptable risk, and what strategies do you use to minimize the downside?
Doug Casey: Many speculations are illiquid because they're unknown. The public can't take advantage of them if they don't know they even exist. Of course, that's usually just as well. Illiquid speculations are generally best avoided. They may turn into lobster traps-you can get in but not get out.
At the same time, illiquid markets can yield excellent speculations. The very fact something is illiquid may indicate that nobody's looking at it.
On the other hand, many good speculations are well-known to the public, but the public hates them. Everybody thinks they're terrible because they have a "bad track record." Fair enough; stay far away from people with bad track records. But commodities are different from people. The people running companies can be replaced. Fashions and technologies change.
Good speculations are often either illiquid or hated. And very often, speculations are politically charged. You're dealing with the presence, or the consequences, of laws and regulations that have actually created the opportunity.
International Man: What do you see as the biggest speculative opportunities right now?
Doug Casey: Gold was the classic speculation, artificially suppressed by the government for many years at $35 an ounce. Smart speculators realized its success was, in effect, guaranteed by the government. The rest is history.
Bitcoin and gold have both gone up "bigly", as Trump might say. I'm afraid that both now are in roughly an equilibrium area. They aren't artificially suppressed. Both are well known. That said, I think they're both going higher for a number of reasons. But they no longer qualify as ideal speculations, as they once did.
I'm not interested in the general stock market. It's overpriced by historical parameters, like price to book value, price to earnings, and dividend yields. It's been driven up by huge amounts of money printing and the creation of huge amounts of debt. That's the real problem.
The financial markets are sitting on a time bomb of debt, and if there are serious defaults, it could all come undone. This is equally true of the real estate market, where most decent houses are $1 million, and many are much, much more. Almost all of them are mortgaged, which is to say purchased on margin.
The bond market may be the worst place for money at this point. It's a triple threat to your capital. You have the inflation/currency risk, the interest rate risk, and the default risk.
The most unknown, unloved, and illiquid part of the market is low-priced resource stocks, particularly explorers and developers. They've been bouncing along the bottom for about five years now. I'm betting that we're going to see at least one more bull market when all of them go up 10 to 1. That's where I'm concentrating.
Investors may allocate 100% of their capital in search of a 10% return. That's OK, most of the time. But now is a time when a speculator can allocate 10% of his capital in search of a 100% or a 1000% return.
Reprinted with permission from International Man,