How do you pick the time to go against the hysteria? I wait until the market starts moving in gaps.
In the midst of it all, or do you wait for some sign of an end to the move, for example, a reversal day? No, I don't know about reversal days.
That brings to mind a classic example of hysteria. In late 1979-early 1980, the gold market witnessed an incredible accelerated advance. Did you go short that market? Yes, I sold gold at $675.
That was almost $200 too early! I told you I'm not a good trader. I'm nearly always too early, but it was only about four days before the top.
I didn't say you were way off timewise, but pricewise it must have been a pretty scary ride. When you do a trade like that, isn't there a point where you have second thoughts? Yes, when it goes to $676 [he laughs].
But you stayed with the trade? Yes, in that case, because it was chaos. It was something that couldn't last. It was the gold market's dying
gasp.
Was that a matter of recognizing the fingerprint of a market in its final blowoff, or was it a matter of gold being overpriced? Both. Gold was overpriced, but basically it was—I like your terminology—the "fingerprint" of hysteria. Just
about every time you go against panic, you will be right if you can stick it out.
So when you see panic, do you automatically go against it? The panic, the hysteria, in and of itself is only a catalyst to make me look to see what is going on. It doesn't
mean I'm going to do anything. In the case of the early 1980 gold market, I had a view of the world that was bearish
for gold. Volcker had just become the Federal Reserve Chairman a few months earlier and said that we were going to
beat inflation. I believed he meant it. I also happened to be bearish on oil at the time, and I knew that if oil went
down, gold would go down as well.
