I've read alot of books on investing on many different topics from oil, to stocks, to Real Estate.
- Reminiscences of a Stock Operator - Edwin Lefevre
- How to Make Money in Stocks - William J. O' Neil (founder of Investors Business Daily newspaper)
- biographies and autobiographies on men like: Warren Buffet, Rockefeller, Carnegie, Bill Gates
- Liars Poker - Michael Lewis
- The Prize - Daniel Yergin
- Rich Dad/Poor Dad - Robert Kiyasaki
- and many more...
I've studied different industries and different investors who have made money in all sorts of economic times. 1 thing I noticed is that many of the people who have been most successful started doing something at a time when nobody else wanted to (for one reason or another, it was difficult, impossible, risky, dangerous). When I read the CNN article about how no one in America wants to buy Real Estate right now I can't help but wondering if this is one of those same historically momumental opportunities.
In my readings I've also learned a little about attitudes towards investing that seem to repeat themselves.
It is generally a bad time to buy when:
- Everyone thinks it is a good time to buy
- It is easy to buy (getting a mortgage 2004-2006)
- Everyone thinks the market will only go up (2002-2006)
- There is little inventory
It is generally a good time to buy when:
- Everyone thinks it is a bad time to buy
- It is difficult to buy (i.e.- high interest rates or tough underwriting standards)
- Everyone is scared that the market is going to continue to fall (low consumer sentiment)
- There is a lot of inventory
Another thing I learned by studying great investors throughout history is that even they cannot time the market. Trying is futile. Buyers who are waiting to open escrow on the day of apocolyptical alignment where home prices and interest rates miraculously hit their rock bottom simultaneously and bank REO departments are begging to unload recently remodeled Beverly Hills pool homes with views and slim chin like "freaky lady pyramids" are not being realistic. Buy an investment that can pay you while you wait for inflation and potential appreciation. If you are getting paid to wait while you payoff an underlying loan on an investment property it can go down in value and still work out beautifully for the investor. If I buy a 4-unit apartment and it pays me $700/month after expenses what happens once the loan is paid off 30 years later and now I get $3200/month after expenses? Who cares if my underlying investment is worth less if you are getting that type of cashflow? And bottomline is this, any sort of ATM-like investment instrument spitting out that type of dividend will always have a buyer.
Let me give you an analogy: If you were a contractor and you bought a hammer, used it to make money for 30 years and then retired and it wasn't worth anything but still kept paying you every month (3x as much now because there was no underlying loan behind it now) would you care? Didn't think so, then why if I can get clients that offer these types of returns buying los angeles real estate in December 2010 are all of these people so scared to buy?
I don't get it...
Posted by Ben Nicolas on