Financial intelligence is mostly counter intuitive. Take everything you feel about the economy and turn it on its head.
You’ve heard “buy low, sell high,” right? Sounds easy enough, but how do you do it? Most people buy high and sell low.
This is why the rich are rich and most of us aren’t.
Sell when everyone else is buying. Buy when everyone else is selling. Save when everyone else is spending. Spend when everyone else is saving.
I just met an entrepreneur who positioned himself perfectly for this economy. He said,
“This is great, I just bought a 2.5 million dollar building for 800K. I
hired a dozen unemployed construction workers off craigslist to gut it
and remodel it. I just hired 5 .NET developers for half the price I
would have paid last year.”
What will you do next time? Mark my words, this will all happen again.
That’s how you build wealth. It’s simple, but most people won’t do it. The social pressure to spend when the Jones’ are spending is too great. Most people can’t bear to show up at hockey practice in an old mini-van, when everyone else has a shiny new Denali.
Then when the bust happens, they are broke and paralyzed by fear of unemployment and they miss out on the cheapest prices in a decade.
My neighbors are doing a major remodeling project right now. As I write this, I am looking out the window, and there are four pickups parked outside and even more men inside working. So in this economy, how can they afford it? I don’t know, but I can guess they saved during the boom and they are now paying half the price they would have paid two years ago.
Booms and busts are as certain as night and day. They are the natural cycle of economic life. Trying to rid the economy of booms and busts is like trying to rid the world of night and day.
This is simple if you build self-discipline and refuse to be herded into the latest stampede.
2006 was the top of the last boom. Most people I knew were buying new cars, buying new homes, remodeling, and spending like the good times would never end. About that time I had a conversation with a real estate agent about investment properties that went like this…
“Sooner or later the price of homes will drop.”
“It isn’t going to happen. It hasn’t happened since the 1930s.”
“Doesn’t mean it can’t happen again.”
“It’s happened in a few localized markets, but not one like ours.”
“What goes up, must come down. The higher it goes the farther it has to fall.”
“Unemployment would have to skyrocket and I can’t see that happening, not now. They are projecting a million more people in the metro area in the next 10 years.”
“Hmm, so buy now, it’s only going up?”
“If you buy this house (600K), it’ll be worth 30K more by the time you close. You can’t lose. You don’t want to get left out. Don’t leave money on the table.”
The words “you can’t lose” were the trigger.
You see, if I had done what I knew was right, I would have sold him my home and rented an apartment. I didn’t sell because it would have been too disruptive to my family and Christine’s business. In retrospect I
should have, I would have made a pile of dough, and right now I’d be buying the 600K house for 300K.
But no matter what you do, you can lose, and you should be willing to accept responsibility for your loss. Take calculated risks, not blind gambles. Responsibility for the results of your actions, good or bad, is the foundation of freedom.