Way back in the 1700s, Baron Rothschild said this:
The time to buy is when there’s blood in the streets.
He went on to make a fortune by buying during the panic that followed the Battle of Waterloo against Napoleon, and solidified his family’s place as one of the core families of the elites, all the way to this very day.
Jim Rogers, when asked about where in the world he’s most excited about investing, always answers, “Myanmar.” News commentators are always confused about this. Why invest in Myanmar? Myanmar, formerly Burma, is a backwards, third world, military dictatorship where people regularly get slaughtered. Go watch the 2008 Rambo movie for some examples of what was recently going on there.
Buying low is good. Investing in things that are priced very low because no one else wants to buy them is good. It’s a good way to make money. Unfortunately, the vast majority of the population wants to buy into investments that are already doing well and that people are already excited about. That’s buying high, and it’s stupid. Let’s see what Warren Buffet said about this:
You pay a very high price in the stock market for a cheery consensus.
In other words, if everyone agrees with your investment decision, it’s probably not a good one. (That applies to just about all areas of life, by the way.)
This is one of the many reasons I have no money in the American stock market right now. It’s doing well, quite overpriced, and I don’t want to buy high. I only want to buy low.
When the American stock market crashes next, and it will, then I might take some of my speculative investment money and go buy some index funds. But not until then.
I mentioned a few weeks ago that I purchased some British Pounds because of the drop off caused by Brexit. I bought in at a GBP/USD value of 1.27. Today, it’s down to 1.21. As a comparison, in 2007 it was at 2.0.
Am I pissed? No. I’m buying some more. If it keeps going down in value, I’m going to continue to buy more. At the moment, the British pound is at its lowest value since the 1980s(!). If it goes lower, that’s awesome. I’ll buy more. If it goes higher, that’s awesome, and I’ll sell it at a profit.
Most people are the opposite. As an investment they own goes down, they freak out and sell it. Stupid. That’s selling low. You want to buy low, not sell low.
As it is in so many other areas of life, doing the opposite of what most people do is usually the smartest move.
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How do you buy British pounds any recommendations on who is the best to buy from?
The easiest way is to just buy an ETF based 100% in British Pounds. There are many; just Google around.
I go on track records and Jim Roger’s one is appalling.
He started from nothing and is now worth hundreds of millions of dollars. Yes, what a horrible track record.
Of curse selling higher than you bought is how you make money in investments, but if it was this simple everybody would do it. Let’s look at the S&P 500 for example. Let’s say you’re in the Summer of 2013 and the stock market has finally recovered to it’s peak before the recession, about 1600. If you just followed this logic simply you’d say you should wait until the next recession to invest. The problem is that we haven’t hit the next recession yet, and the S&P 500 has returned about 10% a year between then and now. And most likely the next recession won’t drop the prices below what they were then, so you would have been better off buying then.
It also works in the other direction. Just like you don’t know where the peaks are until it’s over, you don’t know when it’ll hit rock bottom. Looking at the S&P 500 again, if you were in August of 2008 the stock market had dropped about 16% from the beginning of the year. This is the low you’re looking for and buy. The problem is the economy had yet to reach the bottom, so in a couple month your investments had lost half their value, and wouldn’t recover back to that point again for another several years.
In reality, you have to know a bit more than “buy low, sell high”. You have to have a good reason why something is overpriced or underpriced.
Classic Societal Programming, and wrong.
My entire point here is that it is simple, yet most people don’t do it. Most people invest in things that are already hyped, and are already at decent highs.
That changes absolutely nothing I said in the article above. Timing the market is an entirely different subject.
I agree that helps, yes.
I know you read some Robert Kiyosaki. What do you think of his prediction of the market getting slaughtered when the Boomer generation inevitably takes their money out of the market? I believe Harry Dent says the same thing.
I’d also be interested in your opinion on Kiyosaki advising to only invest for cash flow and not appreciation.
Extremely useful article, Mr. Jones!
Steve, beware the typical “money goes out of the market” argument. It is as valid as the “cash on the sidelines”. There is always the same money in the market, it just changes hands from buyer to seller. Markets aren’t balloons inflated with money taken from elsewhere.
About references for “over” and “unvervalued”, the typical “market-cap/GDP” is perfectly right. Hussman has devised a somewhat better ratio (up to 94% correlation instead of 80-something). http://www.hussmanfunds.com/wmc/wmc161031.htm, according to which dividends will pay more than the 12-year total return of S&P500 (meaning price will be lower in 12 years).
If you can’t believe S&P being lower than now by 2028, just see what Japan stocks have done for the last 25 years and you’ll get an idea of what awaits, no matter how low rates are kept. Decades on end of stocks going nowhere with gut-wrenching drops in between.
Offtopic – check out stem cell treatment results https://www.youtube.com/watch?v=TtkRFKg6AjU
Case studies start at 4min
Not only do I agree, but to a large degree I think it’s already happening.
Well, he advises that cash flow is the priority, not that you should ignore appreciation. I don’t agree or disagree; I think both are important.
His point is to offset the millions of idiots who buy rental real estate at a monthly loss because they think the appreciation will be worth it. I agree that’s a silly move in most cases.
Yup.
Can you recommend some resources on differentiating between undervalued companies vs sinking ships?
No. I’m not into buying stocks.
This article is why I am not getting into the cryptocurrency game. That bubble is going to blow up BAD. But I’ll be there in the 2020s to pick up the pieces 😀
That’s funny! You wrote the comment at the exact bottom of a Crypto crash. I’m loaded for the sucker’s rally that will follow before a 2-year bear market. It’s gonna be epic!
LMAO so it already went all the way down? I kinda predicted that it would happen pretty soon.
Like I said, I’m picking up the pieces in 2020 or so.