Get money in when it looks SCARY – take money out when it looks like a SURE THING.

Strategy

An important principle to successful investing in real estate, business or the stock market is to do the opposite of the “herd”. That means you will be a buyer when no one else is. A seller when everyone else is a buyer. Simple right?

 

Most investors are unable to separate their wallet from their emotions. Conventional wisdom dictates that there are safety in numbers. So if no one else is doing it; how can it be a good thing? Can you think of something that has recently dropped dramatically in price? Do you believe it will recover its value over the next 10 years? I know there are few guarantees in life. But, my experience has taught me that there are principles that if followed over long periods of time will yield better than average results.

 

Consider this – Property values in the US from 2009-2012 were devastated. The Canadian dollar was at par with the US green back. The US economy was a mess. The media declared daily how bad things were. Unemployment was nearly 10% and things looked dire.

Given these sets of circumstances would you wager property value in the US would rise over 10 or even 20 years?

 

By 2014 property values were up over 25% and the US dollar surged to $1.10 per Canadian dollar. That is a nearly 50% return in 5 years. Only someone with a long term perspective could have made that purchase a few years ago.

 

Consider this – In the year 2000 the Tech Boom saw stocks raging with the US DJIA toping 10,000 points. A year later a crash in this mania brought the DJIA stock market down 30% to the low 7,000 point range. Through that period we saw rising unemployment, bankruptcies, September 11th, Enron Scandal and myriad of deep fear in the markets.

 

Given these sets of circumstances would you wager the value US stocks would rise over 10 or even 20 years?

 

By 2005 all damage had been repaired as the market got back to 10,000 and then marched on to 14,000 by 2008. That is a 40% gain from 2005 but only a measly 4% from 2000. But a whopping 100% from the lows of 2002. With a long term perspective could you have made that purchase with such fear and loathing prevalent?

 

Need more convincing? Think of just recently in 2008 where we saw 14,000 turn back into 7,000 only by 2014 to rocket up to 17,000!!!

 

Being a contrarian is going against conventional wisdom. There is a reason that 10% of the population controls 90% of the wealth. If the choice is fight or flight – fight! Take a long term approach and stick with it. Diversify your holdings in to various asset classes. More importantly ignore the media. Turn off the TV and stop listening to anyone expect your long term rational perspective. Get money in when it looks SCARY – take money out when it looks a SURE THING.

 

Michael Andersen

November 2014

 

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