Don’t Make This Rookie Investor Mistake
The Amplified Impact Podcast
December 26th, 2023
Ever wondered about the right time to invest?
Well, I recently got a comment on Twitter that hit on a common investing misconception…waiting for the perfect time.
You know the drill…people hesitate, thinking it’s either too soon or too late to jump into the market. But here’s the thing: it’s all about ‘time in the market, not timing the market.’
But this mindset could potentially be holding you back from seizing great investment opportunities.
TWEETABLE QUOTE:
“It never gets easier. You just get better.”
– Anthony Vicino
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Episode Transcript:
So the other day, I got a comment on Twitter from a guy who shared a perspective, which I think is very, very common amongst many, not just new investors, but even seasoned investors who maybe know better, and yet they still find themselves kind of slipping into this trap. So the post that he was responding to that he left a comment on, I was just sharing how I think in 2019, we had acquired it, maybe $3 million of real estate, and then 6,000,009 and then 15 and 20 or whatever. Like every year, we just kept growing and growing. And the moral of the story was, hey, look, we’ve grown a lot over the last couple of years. And all that’s to say is that each one of those phases of growth, it felt very difficult. And so it never gets easier. You just get better. That was the moral.
And his point was, well, what do you think about the fact that you were buying so much real estate at the height of the market cycle, and therefore, his theory was that you are overpaying. What he was saying specifically was, why would you buy such expensive real estate? And I think this misses a very important, fundamental concept about investing. And it’s one that I see a lot of people falling into this mindset of. The reason a lot of people don’t get into the market, they don’t start investing, is for one of two reasons. They either think it’s too soon or it’s too late. What I mean by that is a lot of people will say, oh, I’m not going to invest quite yet, because I think we’re at the top of the bubble. It’s about to pop. I’m going to wait for prices to come down.
I know people who have literally been saying this since 2016, seven years now, we’ve at the top, and yet it continues going up. The other side of it is people who wait until it’s too late. And so now it’s already on the way down and it’s scary, and there’s blood in the water, and now it’s a frothy market and it’s like, well, now is not the time to buy. Now is the time to hold on to cash and be conservative, because it’s scary outside, right? And these people that find themselves always waiting because it’s either too soon or too late, they end up never taking action, and then they never get the benefit of having invested. They miss all of these opportunities. And the truth is that when it comes to investing, it’s about time in the market, not timing the market. So it’s not about getting in and out at the exact right moment. It’s about just getting in and staying in for as long as you can.
Because most markets on a long enough time frame continue improving and increasing over time. Whether that’s s and P 500 or it’s real estate markets tend to appreciate on a long enough time frame. So your goal when it comes to investing should be get in as soon as you can and then stay in for as long as you can. If you do that, you’re generally going to be okay. But to go back to this gentleman whose comment, know why, doesn’t it seem pretty risky to have been getting in and buying such expensive real estate at the top of the market? And to that, I would say this Warren Buffett said, price is what you pay, value is what you get. And what that means is just because something is expensive doesn’t mean it’s overpriced. And the reverse is also true. Just because something is cheap doesn’t mean it’s a good deal, right? You take that within the context of the real estate 2021, let’s say, very top of the market, right? You’re buying real estate at that.
It was expensive, but was it overvalued? Was it overpriced? That’s the question. Were you paying more for it than it was worth? Were you paying hoping that maybe over the next few years it’ll continue appreciating and get more valuable and you’ll be bailed out in the long run? Perhaps a lot of people did that, and now they find themselves in a lot of trouble when that reality is not playing out on a short enough time frame and their debt is starting to restructure or they don’t have enough cash flow to be able to make their mortgage payments. And so now they’re in trouble. That’s not a good strategy. But it is possible to buy an expensive piece of real estate at the top of the pricing market and know that you’re actually underpaying what it’s worth. And the way that you do that is you go into an asset that you know you can improve through operations. Perhaps you’re increasing the revenue through making new improvements to the building, and then you’re able to generate a rental premium, or you’re going in. And through whatever synergies and operational efficiencies you have with your property management, you’re able to reduce your expenses and therefore run this asset more profitably.
There’s a lot of ways to make an asset more valuable. And if you can do that relative to what you paid then that’s usually a pretty good investment. Now, if you don’t have any way of going in there and forcing that appreciation to improve the valuation of your building, and all you’re relying on is organic market appreciation, that is to say, oh, I hope that the market just keeps getting better and that people in the future are willing to pay more than they are right now for no other reason than the fact that inflation and supply demand constraints, that’s a bet I’m not willing to make on a short time frame and a three to five year window. No, thank you. On a ten to 20 year window, sure, because most cycles play out over at least a 20 year cycle. Right. And so if you get in and you know that you’re going to stay for 2030 years, you’re probably going to be all right. But the takeaway here that I really just want to drive home is that Warren Buffett concept, that price is what you pay, value is what you get.
And that just because something’s expensive doesn’t mean it’s overpriced. And also the reverse, because this is what gets a lot of new investors into trouble. They think cheap equals good deal, so they go after the penny stocks, they go after the thing that’s like dropping in value. And is cheap. Cheap relative to what? To the underlying value. That’s the question you always have to ask. A thing can be cheap and still be overpriced. So hope this brings some value to you.
As always, guys and gals, thanks for being here. I’ll catch you tomorrow. But until then, stay hyper focused, my friends.
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