Mastering the Art of Speculation and Today’s Top Opportunities
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.
Article from LewRockwell
LewRockwell.com is a libertarian website that publishes articles, essays, and blog posts advocating for minimal government, free markets, and individual liberty. The site was founded by Lew Rockwell, an American libertarian political commentator, activist, and former congressional staffer. The website often features content that is critical of mainstream politics, state intervention, and foreign policy, among other topics. It is a platform frequently used to disseminate Austrian economics, a school of economic thought that is popular among some libertarians.
