NEWS: Going Contrary

Going with the crowd, leads you to where the crowd is going. Following the crowd may work fine in many situations, but is it really the right thing to do when it comes to your family finances and investing for your family’s future? A very small portion of retired couples are independently wealthy. Isn’t that where each of us wants to be down the road when we retire, or perhaps even sooner. As Americans, by following the crowd, most of us will end up with a modest retirement and will not be in a position to do the things we would like to do when we retire. Some of these people are doing the right things, just at the wrong times.

Buy High and Sell Low
It seems like a typo doesn’t it. I was turned onto this phenomenon by a stock investment specialist who spoke at one of Robert Kiyosaki’s seminars (author of Rich Dad, Poor Dad). Since that time many years ago, I have watched it happen to people over and over again. Intuitively we recognize this as the wrong way to go, however fear and greed will try to drive many to do it over and over again. Let me explain:

Do you know someone that bought stocks during the dot.com boom during the late 90’s, or even in 2000, and then liquidated them when the bubble burst? Do you know someone who invested in real estate during the past four years, only to turn around and sell it when the market really slowed down? As an investment vehicle does well, we tend to want to jump into it, and then when it suddenly reverses, fear will tell us to get right back out of it. When we jump into an investment late, we will have missed most of the gains and show up just in time for some losses. We will read in the news about how horrible XYZ investment is doing and then we are tempted to panic and pull out. If we then panic and then sell, we have just bought High and sold for Low, and this happens all of the time.

Long-Term Perspective
I don’t know a great way to Get Rich Quick, though I can think of a lot of ways to Get Poor Quick. I do know a very good way to Get Rich Slow and it works very well. Long-term real estate investment can provide you with phenomenal returns on your investment at very nominal appreciation rates (5%-8%). With those appreciation rates and if you are properly leveraged, you can get 20% - 40% returns on your money. With a long-term perspective, you won’t be worried that all the newspapers are telling Doom and Gloom stories about the real estate market. You won’t try to liquidate your investments “before things get worse”. You will know that it is a natural part of the market and that typically when the real estate market gets soft, rental rates increase. So not only will you be happy with the Doom and Gloom, you will even see it as a great opportunity to buy more real estate from the people who are liquidating their real estate at a low-point.

Going Contrary
We already discussed where the crowd is going and hopefully, that is not where you want to go. So think about this simple question: When planning your first or next real estate investment, do you want to buy while the market is going up, or when the market is down? There are times to buy when a market is already going up, though it should definitely make you nervous if the market has been going up for a while.

Generally, when you buy in a down market, you are positioned to make the big gains when the market swings back around. A simple way of thinking about it that holds a lot of value, when everybody is buying, that may be a good time to consider selling, and when everybody is selling, that may be a great time to be buying.

Unfortunately, many Americans will end up with a very modest retirement and have to downsize their living conditions to meet the retirement income. Many in America will even do the right things, but at the wrong times. Remember my simple Contrarian suggestion that “when everyone is buying, consider selling and when everyone is selling, consider buying” and it should help you as you navigate your personal road to a great retirement.

Jared Murphy
Associate Broker - Allstar Realty