Opinion from a Libertarian ViewPoint

Doug Casey on Making a Crisis Your Friend

Posted by M. C. on March 3, 2022

People told me at that time that my penthouse apartment was selling for less than a ground floor apartment, which would be horrible to live in with all the street noise. But the reason that it was selling so cheaply is that they were convinced that you would have to walk up 13 stories when the Chinese took over because they wouldn’t fix the elevators. I mean, that’s how things worked.

by Doug Casey

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 you turn a lemon into lemonade.

And a good speculative opportunity is both high-potential and low-risk—not high-potential and high-risk. Most people don’t understand that.

Nick Giambruno: That brings to mind the Russian oligarchs, who became oligarchs in the first place because they did some crisis investing, i.e., they bought when the blood was in the streets and picked up some of the crown jewels of the Russian economy for literally pennies on the dollar.

Doug Casey: It’s interesting with the oligarchs, because in the Soviet Union, everybody got certificates, which were traded for shares in businesses that were being privatized. The average person had no idea what they were or how to value them. The people who became oligarchs were able to buy them up for a couple of pennies on the dollar, taking advantage of the negative public hysteria following the collapse of the Soviet Union.

So this is a recurring theme—buying when the blood is in the streets. It’s what speculation is all about: namely, taking advantage of politically caused distortions in the marketplace, or taking advantage of the aberrations of mass psychology.

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