by Doug Casey, International Man:

International Man: Markets have extreme emotions. They can go from irrational exuberance—where it seems everyone is swinging from the chandeliers—to a bottom-of-the-barrel bear market where people don’t even want to look at the business section.

Why is assessing the psychology of the market so important?

Doug Casey: The market, as Warren Buffett has pointed out, can be either a weighing machine or a voting machine. You can make money in the market either way, but you have to recognize which machine is giving you signals.

Although Mr. Market sees and knows almost everything, he pays the most attention to the voting machine, because he’s basically bipolar, a manic-depressive. As a result, not only do you have to deal with the psychological aberrations of millions of other people who are running in a crowd and voting with their dollars, but much more important, you have to deal with your own psychology. You are, after all, part of the market.

The only thing you can control, however, is your own psychology, not that of the market’s other participants. Once again quoting Buffett, “Be fearful when others are greedy. Be greedy when others are fearful.”

It’s a matter of having good psychological judgment. Everybody wants to be a contrarian, and perhaps they think they are a contrarian. But, in reality, it’s hard to be a contrarian.

It’s a bit easier for me because I’ve been wired that way almost from birth, which got me into constant trouble in school. I was always labeled a troublemaker—an enemy of authority. Be that as it may, I just don’t like people telling me what to do. This can be a double-edged sword because one of the oldest sayings in the market is “the trend is your friend.” Most of the time, you actually want to go with the trend.

In other words, you don’t want to swim against the tide. You’ll get beat up and washed away, eventually.

Really, the only time to be a contrarian is when you have good reasons for believing it’s a genuine top or bottom in the market. It makes no sense to be a contrarian 80% of the time. That’s when you ought to go with the trend.

International Man: That’s an excellent point.

What are some of the craziest things you’ve seen at market tops?

Doug Casey: Regrettably, I’m now 73 years old—although, it beats the alternative.

I’ve been interested in the markets and have watched them my whole life, gaining knowledge along the way.

The first wild and crazy market that I can remember personally was in the late ‘60s, when any stock that had the suffix “-ex” or “-onics” at the end of its name was considered an automatic buy. It was a huge tech bubble, like the one today. That was just before a gigantic crash, of course. And the market went nowhere until 1982 when it finally bottomed.

The first market bottom that I was able to take advantage of, however, was gold in 1971. I had read Harry Browne’s brilliant and short book, How to Profit from the Coming Devaluation, published in 1970.

It made all the sense in the world to me for good, logical reasons. I was a kid, just out of college and without much money, but I started buying gold coins and gold stocks. I went from just watching a manic top in the stock market to actually taking advantage of a bottom in the gold market.

Anyway, in the early ‘80s, there was a manic bottom in both stocks and bonds. Even the US government was paying 15% to 18% to borrow. I wrote “Strategic Investing,” which was published in November 1982. It was a stock market book. My big recommendations were electric utilities (they were yielding 12%–15% in current dividends) and the “Nifty Fifty,” a group of stocks that were never supposed to go down—things like Xerox and Polaroid. The Nifty Fifty were the Amazon, Facebook, and Apple look-alikes of the era. But they were crushed about 90% in the bear market that bottomed in 1982.

To give you an idea how grim it was, Businessweek had a front cover called “The Death of Equities.”

Incidentally, the only investment advice that somebody who is knowledgeable about market history really needs is on the covers of popular magazines, like the famous “The Death of Equities” Businessweek cover, which came out exactly at the bottom of the market.

They had another cover in 1984 titled “The Death of Mining,” which of course was the bell ringing for the bottom of the mining market.

You could save yourself a lot of money on financial newsletters if you just go down to the drug store every week and see what’s on the cover of magazines. You don’t even need to read the articles—journalists know nothing about the markets. Their opinions are, at best, contrary indicators. Once every year or two, there’s going to be a tip-off when they’re really bullish or bearish.

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