How to Grow a Money Tree
What is an Intelligent Speculator?
By definition, an act of speculation represents an investment that has a probability to yield profits.
This probability capitalizes primarily on market aberrations. An investor puts money in an asset and hopes to profit overtime.
A speculator uses economic distortions to profit from political and economic events associated with these distortions.
Douglas Casey has successfully used economic aberrations to profit and to build sustainable wealth. Mr. Casey embraces risk and associated with it high rewards.
An experienced speculator wants to understand financial trends and deviations. Let’s examine commodities.
The commodity market has been bearish for a long time. If we evaluate the precious metal mining business as an investor, we may find that its profit margins are very low. We would probably stay away from investing in it.
Speculation Asset Class #1: Precious Metals
However, as a speculator, we want to understand context.
Historically precious metals have been undervalued for several decades.
Considering the cyclical nature of the stock market, an intelligent speculator will examine the historical performance chart.
He will find that gold and silver have been consistently under performing, or rather, their price have been artificially suppressed.
He will also look at the recent events in the financial market, in particular at the recent actions taken by the top players in the industry.
For instance, JP Morgan’s recent portfolio changes have indicated potential price increase on silver. JP Morgan had taken short positions on stocks and bonds and long positions on silver.
JP Morgan has been extremely successful after the financial turmoil of 2007-2008 and has been heavily influencing commodity market pricing.
In the eye of an intelligent speculator the recent JP Morgan’s decision may mean that the bank will remove the proverbial cork holding gold and silver prices in place and will let their prices flow organically.
Having analyzed the aforementioned aberration, an intelligent speculator will capitalize on the information and will invest in precious metals, in particular in silver and gold.
Speculation Asset Class #2: Mobile Home Parks
A pedestrian investor may cringe at the proposition to invest in mobile home parks. We are not talking about owning homes but the land they sit on.
To understand the speculation strategy, a successful speculator will analyze the economic context and will derive a potential profitable proposition.
After the 2008 real estate bust, many Americans lost homes and money. Also, mortgage qualifications have become more stringent as a result.
Furthermore, the wealth level in the United States has been gradually declining in the past decades.
The household annual income for 20% of Americans (60 million people) is under $20,000.
Based on government’s recommended ratio of housing costs to total income, one third of these families can only afford to spend approximately $500 per month on housing.
However, the average rent in 2017 was $1,200. So, there are two places one can live for $500 per month – low-cost rent apartments or mobile homes.
Families would prefer mobile homes to low-cost rent apartments for many reasons; privacy, backyard and place to play, the absence of noise, low crime.
This social and political aberration would peak speculator’s interest due to some other practical aspects such as:
- Lower cost per unit;
Owning houses can add up to $100,000 per unit whereas a land lot can be purchased for as little as $10,000.
- Growing demand;
Since the average annual income has flat line in the past decades but the cost of living has been rising, the demand on affordable housing has been rising.
- Lower cost for repairs and maintenance;
Low operating costs stem from not having to do expensive repairs and maintenance associated with owning housing units.
- Low tenant turnover;
- Spread out risk
Since a mobile home park investor can afford to have more tenants, as opposed to someone who owns 4 rental units, for instance, the cost of losing a tenant is spread out more evenly over multiple income producing tenants.
Furthermore, the amount of land that can be utilized by mobile home parks is limited by legislation.
This aspect in the current socio-political context will keep mobile home park demand high. It will also provide stable income during economic recession.
Speculation Asset Class #3: Blockchain Technology
Unlike precious metals and mobile home parks, block chain technology and cryptographic currencies have a higher degree of risk for a successful speculator.
The cryptocurrency market has been experiencing a tremendous level of volatility since its emergence in 2009.
Typically, later in the game, when the winners are obvious to the crowd, the cost of entry becomes immensely high and a potential bubble forms.
To a successful speculator, the cost of entry plays a crucial role in the amount of reward he can obtain from a venture.
There may still be some opportunities for new investors in the cryptocurrency market given each speculative asset is thoroughly evaluated within the current socio-political context.
Speculation Asset Class # 4: Energy
The commodity market operates cyclically going through the motion of booms and busts.
The cyclical nature of the commodity market should alert a speculator when he examines oil.
The crude oil sector has been in the worst bust in the past four years. Since 2014 oil prices fell 75%. It is not going to last long, eventually oil prices will stabilize and will go up again.
Thus, a successful speculator values timing: it amplifies rewards and reduces losses.
Uranium has also been undervalued.
We should not underestimate the compounding power of buying low: the lower you buy, the more shares you can afford with the least investment amount. It typically yields higher returns faster.
Market corrections are the best opportunity to buy: “Be fearful when others are greedy and be greedy when others are fearful”.
Speculation Asset Class #5: Geopolitical Regions
Emerging successful speculators use crisis investment strategies developed by Doug Casey back in the eighties.
Moreover, Doug Casey has successfully proven these strategies building his own impressive wealth.
The international man advocates investing in failing geopolitical regions right before they rise back up.
South Africa has been such a region since the seventies. Doug Casey turned the situation in his favor by investing in gold stocks in South Africa when they dropped 95% .
An extremely risky situation, isn’t it? To a successful speculator, however, it is a high-reward opportunity. Mr. Casey produced 700% gains back in the eighties.
Gold stocks in South Africa present a speculative opportunity that may replicate Doug Casey’s results in the eighties. In 2011 the price of gold collapsed crushing South-African gold miners.
Gold stock prices fell more than 80%.
Now the price of gold there bottomed.
This presents a perfect investment opportunity where the cost of entry is low, so is the risk, and the reward opportunity is high. In fact, stocks of good value South-African gold-mining companies listed on the New York Stock Exchange can be easily purchased.
An intelligent speculator discards conventional wisdom making investment decisions.
An intelligent speculator utilizes critical economic situations and market distortions to profit and to prosper in any financial downturn.