Invest Wisely: Easier Said Than Done ...by Bill Knell
Sometime back in the early 2000's I heard a loud knock at my door. Since they didn't ring the bell I knew it was either someone selling something or an authority figure like a member of the police department. Both like to knock instead of ringing the bell to show assertiveness and avoid the possibility of getting a shock from a faulty or damaged doorbell button. It turned out to be a man trying to drum up business for his financial consultation service.
Common sense says that most credible people in the financial services industry are more likely to cold call you than knock at your door, but with some time on my hands that day I thought I would have some fun with this guy. After handing me his business card and explaining that he just opened an office near our neighborhood, I explained to him that I was not in the market for financial advice and waited to see what he would do next.
My visitor was someone who said he was trying to make connections in the neighborhood and was certain he could offer me some value for his services. I explained that at that point in time I was not interested in making any investments in stocks or bonds and wouldn't recommend it for anyone else. I explained my reasons why and suggested he find another occupation before the bottom dropped out of the market.
My conversation peaked the financial consultant's curiosity, so he asked what I would invest in. I suggested some very short term investing in real estate with this disclaimer: Buy very low, hold or rent the property for a year, then sell high. At that time the real estate market was on the verge of a huge expansion that was being aptly predicted by investment wizards like Wayne Rogers. However, as certain as it was that real estate would soon be red hot for a couple a years, it was equally as obvious that the bottom would eventually drop out in a huge way.
I don't know if the financial advisor took my suggestions, but time has shown that my advice was sound. What I have learned about investing comes from watching the right people make the right moves at the right time and using some good old common sense. While many investors watch people like Warren Buffet, I like to watch investors like Wayne Rogers. I believe that he doesn't think in a manner that constantly considers the financial health of billion dollar corporations or the shareholders of same, but in terms of an average investor trying to keep his head above water.
Rogers started investing in real estate during his acting days and found that he had a knack for it. That knack helped him and others. After learning that his friend Peter Falk lost a huge sum of money due to financial mismanagement by a former manager, Wayne helped Falk get back on his feet and prosper through sound investments. I believe that Roger's gift for financial success is one that comes from facing market realities and having good old common sense.
A good example of using common sense when it comes to investing is watching what goes on around you. As the real estate boom hit my area, I watched houses worth around one hundred and twenty to two hundred thousand dollars in my neighborhood suddenly list for double their value. Even more astonishing was the fact that people were buying them up like fresh rolls at a bakery.
My neighbors were all middle income folks that struggled to pay their bills and have a few bucks left for some amenities that could be spent on themselves and their families. I was glad to see them all gain from the sudden real estate boom. What made me even happier was the fact that at least some of them were not foolish enough to follow in the footsteps of those who purchased their ridiculously overpriced homes. They bought modest homes at fair prices elsewhere and saved the rest of their home sale profits for a rainy day.
It did not take a psychic to see that any home that was suddenly selling for twice its value in a short space of time would be a very risky investment. That forms the basis of rule number one for common sense investing: If it sounds too good to be true, it is. If people followed that rule there would be a lot less victims of bad investing advice and financial scams, as well as a few less Bernard Madoff types running around selling non-existent opportunities to dreamers and naive optimists.
I will be the first to admit that it is very difficult to maintain your composure and resist the temptation to invest in something that seems to be paying off big for everyone else, but time has proven that those kinds of investments almost always lead to financial disaster in the end. It's like the person who purchases a business that make them big bucks the first few years, then starts to slide after that. It's routine to watch owners of businesses like those use every last penny they have to try to keep the lights on long after their business peaked.
My second rule for investing is never spend good money after bad. Never try and dig yourself out of a money pit, just leave and take what you have left with you. Never forget that every financial investment is a gamble. There are no sure things. Before you invest, crunch the numbers. If you are not good at math, seek out someone who is and specializes in assessing investments. Make sure you get plenty of references before you go there and that clients have nothing but good things to say about them.
It's been my experience that most excellent financial advisors and statisticians who have a talent for crunching the numbers for average investors are not as dapper as Donald Trump or Mark Cuban. They tend to be nerdy or common people that get the job done without a lot of flash. It's the ones who put on a big show and market themselves that way to small investors that almost always seem to be hiding something or inept at their jobs. These are just personal observations that should not be taken as judgments of anyone.
Rule three for common sense investing is to always watch your money. While there is nothing wrong with paying someone else to guide your investments, you should never trust anyone with your hard earned cash. Be vigilant when it comes to watching what is done with your money and know where it is at all times. If you are working with someone else, be sure you are not being milked with high fees or commissions. Be aware of any financial consultant or stock broker's track record and what their clients say about them. Dig deep and be sure someone somewhere is not investigating them for fraud or mismanagement.
Serious investors sometimes drive me crazy because they spend at least half their day every day in front of a computer or on the phone, but that's the price they pay for being vigilant and it is how they make the big bucks. Investors like that are constantly watching their investments and looking for new opportunities. The pay off is that they know exactly where their money is at all times, how much they earning or losing, and are fully aware of what is really happening in the financial markets. People like that tend to be a lot less vulnerable to impulse investments.
The truth is that no one will ever be as careful and concerned with your money as you will. My final rule for common sense investing is to learn as much as you can about what it is that you want to invest in and keep your eyes on the long term prize. Experienced investors will tell you that unless you have a crystal ball that actually works and are able to accurately predict trends, or find the next Apple or Microsoft that will actually last and prosper as those two tech giants have, you had better be wise and beware of get rich quick or slash and dash opportunities.