Dear FutureMoneyTrends.com Member,
So often we hear from commentators to buy the dip, or as popular blogs refer to it as BTFD… Advice that can work in your favor, if you know and trust what you are buying.
It takes courage to go against the crowd. Overcoming your own natural emotion is not an easy task. First off, we have thousands of years of natural order that taught our brains to stick with the herd…Eat in groups, hunt, sleep, live and move with the crowd. For Homo sapiens, this was about survival.
The feeling of jumping in with everyone else in a hot investment sector feels good too. We all can’t be wrong right? As tech stocks hit new highs in 2000 and real estate bubbled up in 2006, investors and speculators late to the party piled in, fearing they would miss out.
As stocks and real estate crashed in 2008/2009 everyone was fleeing, when in reality, a stock like Pfizer (one my personal favorites) was trading at a P/E of 5. And in places like Southern California, it became cheaper to own than to rent.
Besides having the conviction to stay the trade when going against the crowd, I think to be a true contrarian you have to have one essential and core value.
Not ordinary patience, but a time frame of forever. Look at Rick Rule or Warren Buffet and you will observe value investors who’ve waited more than 2 decades for some of their investments to play out.
In a recent article about family wealth I discussed this, where the family fund doesn’t have to worry about retirement or bear markets because it is set up to service the family – not any one individual lifetime.
Rick Rule talks about his ability to carry the cash cost for investments that take decades to yield a return. Warren Buffet says that every time he buys a stock, he buys it with the mindset that the stock market could close for the next 5 years.
Liquidity is likely your best friend and worst enemy when buying publicly traded stocks.
The idea of being able to own part of IBM or Apple Inc. is amazing, however, this same liquidity of shares that helped you enter this business is the same asset that will drive you out of great investments when markets become highly irrational.
A Real-Life Example
In 2006 my wife and I bought a $120,000 investment property, only to see it fall to about $65,000 in 2009. If this were a stock, there is a good chance I would have sold it or stopped out. But because it is real estate, I never thought about selling it. The tenants continued to pay us about $1,200 a month all throughout 2008-2009 and to today, where that property is now valued at $135,000. Real estate is not very liquid, and that actually helped. It saved me from doing something irrational, like selling at the bottom.
3 Disciplines to Dramatically Increase Your Wealth
- Buy hated investments.
- Wait until market extremes, large percentage drops.
- Only invest in a single asset what you can afford to lose.
Setting up investment disciplines for yourself and sticking with them over a long period of time is a mindset for success.