Making a Crisis Your Friend
Nick Giambruno: Doug, you’re one of the foremost authorities in the world on the topic of crisis investing. Tell us a bit about your background on this topic.
Doug Casey: After my second book, Crisis Investing, came out in 1979, I started publishing a newsletter of the same name. I used the Chinese symbol for crisis as the logo. It’s actually a combination of two symbols: the symbol for danger and the symbol for opportunity. The danger is what everybody sees; the opportunity is never quite so obvious as the danger, but it’s always there.
Speculating in crisis markets is the ultimate way to be a contrarian, which means buying when nobody else wants to buy.
It is true, as a general rule, that you want to “make the trend your friend.” But there always comes an inflection point when trends change because a market becomes either greatly overvalued or greatly undervalued. And when any market is down by 90% or more, you’ve got to reflexively look at it, no matter how bad the news is, and see if it’s a place where you want to put some speculative capital.
Nick Giambruno: Massive fortunes have been made throughout history with crisis investing. Was Baron Rothschild right when he said the time to buy is when blood is in the streets?
Doug Casey: That’s a very famous aphorism, of course. It was supposedly occasioned by the Battle of Waterloo, when he was buying British securities while the issue was in doubt.
He was able to pull off that coup because he made sure that he got the information as to whether Wellington beat Napoleon a day before anybody else did. He recognized that Europe was in a period of tremendous crisis; Napoleon, after all, was actually kind of a proto-Hitler.
But a key point here is that a successful speculator capitalizes on politically caused distortions in the market.
If we lived in a completely free-market world—one without government interventions like taxes, regulations, inflation, war, persecutions, and the like—it would be impossible to speculate in the sense I’m using the word.
But we don’t live in a free-market world, so there are lots of good, speculative opportunities that, in effect, let
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