Every investor knows the dictum: “Buy low, sell high.”
Sure. Let’s go do that right now!
The problem, of course, is that no one can reliably time markets. What seems to be a peak can be a pause before a surge to much higher prices. Think Bitcoin when it first hit $10,000. What seems to be a low can be a pause before a fall to much lower prices… as when Bitcoin hit $10,000 again.
This brings us to Baron Rothschild’s famous quote: “The time to buy is when there’s blood in the streets.”
It’s a powerful statement. Very persuasive. Even poetic.
But the fact that some asset has fallen to objectively low prices is no guarantee it won’t drop lower. Uranium prices, for example, fell below the cost of production—a low price almost by definition—and kept falling. In fact, this happened years ago, then they then fell another 50%. Then they fell almost another 50% again.
In the financial context, there is almost nothing that’s so low, it can’t go lower. Even zero can be too much to pay, if it means taking on liabilities or there are adverse tax implications—or worse.
Imagine if I had been some clever Japanese Rothschild in the 1940s. I could have bought whole swaths of residential and commercial real estate after the bombing of Hiroshima. It was the end of everything. Blood was literally flowing in the streets. Desperate people might sell their property for food or water. Maybe I would avoid a place like Tokyo, which would be an obvious target for invaders. I might pick a nice little industrial city out of harm’s way, where the rebuilding would begin. A place like… Nagasaki.
On the flip side, market manias show that there is almost nothing so ridiculously high that it can’t go higher. And there will be people making very persuasive arguments for why it must continue rising. Remember the very logical-sounding cases for Bitcoin going to $100,000—or $1 million—in late 2017?
Even a Rothschild-like speculator who’s willing to wait decades for the perfect speculation can get it wrong.
There’s no such thing as a perfect speculation.
We can make money on imperfection.
I would argue that it’s because market information is imperfect that there are speculative opportunities at all. No one would take bets on horse races if all outcomes are known in advance. If future price movements were provable, everyone would know the future, and there would be no short to our long. No long to our short. Trading would cease.
Fortunately, market information is imperfect. Patterns change. Humans are fallible. Innovation renders past truths invalid. Chaos abounds.
And we can profit:
Key point: waiting for perfection is not only an impossible task, it’s paralyzing.
The batter who waits for the perfect pitch never swings. A speculator who waits for the perfect spec falls into the same trap.
Successful speculators must… speculate.
To do that, one must escape the perfection trap. It’s fear that keeps people in this frozen place.
In my experience, that fear comes from a confusion between rational speculation and wild gambling. People fear losing everything on huge bets gone wrong. But disciplined speculators don’t bet the farm. They almost never go “all in”—and even if they do, it’s only with the speculative portion of their portfolio.
It’s simply not true that one must risk everything in order to win big.
Let go of that fear, speculate with money you can afford to lose, and you’re on your way.
But on what? When? How?
These are questions I aim to help my readers answer.
One good place to start is my free report: Speculation 101.
Another way I can help you is if you bring your questions to one of my live Q&A sessions, like tomorrow’s “Three Yellow Metals… and More” livestream.
And if you want to know specifically how I’m putting my own money to work as a speculator, you’re welcome to subscribe to The Independent Speculator.
You can go it alone, of course. Many people have, and have done well. If you do, I hope you’ll remember that I encouraged you to make a go of it.
Friday, March 15, 1:19pm, EDT, 2019