Everyone loves Warren Buffet but nobody wants to invest like Warren Buffet. They say they want to invest like Buffet but then they go and chase crypto currency, multi family real estate with slim cap rates, and IPOs. People like to chase what’s hot and sexy and that is a failed strategy. Buffet got his start buying what he called cigar butts.
Cigar butt investing is a method of finding stocks that the performance of the business may be terrible (or nearly useless and burnt, just like the real cigar butt), but you can buy its stock at low price. The way to look at this, even when the business is not growing, you expect some way in near time or in some future time that the stock will appreciate due to business changes of other news, so the investor can realize its gain.
If an investment idea is on the front page of the paper this usually means its too late to invest in that opportunity. So if you want to be a good investor, do not go where the crowd find companies they hate like Chipotle, Under Armour, Macys, etc. Crowds indicates that you are late to the party. If you invest in an opportunity late, at best you just wont make money and the security will stay flat. At worst, you will lose BIGLY. This blog will discuss WHY investing where the crowd is will kill you.
Beat the crowd don’t BE the crowd
To be a good investor you have to beat the crowd not just follow the crowd. This requires that you get out in front of trends. Doing so will sometimes make you look foolish when you make predictions that other people can’t see but when those predictions come to fruition you will be rewarded.
On the other hand, if you lag behind the crowd they will eat up all the gains merely based on supply and demand. As demand for something rises and people in the crowd become aware of the opportunity the value rises as the value rises the potential gains are captured by the early adopters. This is why you have to get in early not late. If you get in late you will ultimately end up being the greater fool where you buy but there is nobody to sell to. You are the person in the game of musical chairs with no chair left when the music stopped.
You want to be the person who sells to the late bloomer not the later bloomer. OR, you want to be the person who spots this going on and passes altogether. I saw this in regard to crypto. Crypto was booming booming booming booming then when people saw how much money early adopters made (“if you put x into crypto you would have x number millions”) they wanted to hop in. Those people bought in at 20k when every headline was about crypto (idea on the front page) and they got slaughtered, they lost half their money. Losers! If it is sexy, avoid it. Life game.
Average investors chase
Average investors lack the ability to find or create their own investments so they are forced to chase. Unfortunately, chasers either lose money or don’t make a lot of money. I was forced to find and create ideas because I was tired of getting average returns. Average returns come from being a lazy and unmotivated investor. One that invests in mutual funds and obvious blue chips that take no effort, imagination or strategy.
Another way you are an average is that you invest only in what you can see. This is why they lose. They aren’t doing the homework the due diligence or plowing ahead into the unknown to create the new world, they merely follow and remain a sheep. They won’t get rich but they will feel right as they operate in investment hindsight. Some people would rather be right than rich so they avoid making predicts. Instead they wait until something is so obvious that they can keep their dignity. This is why people invest in blue chips, sure best, glamour stocks.
If you want to get wealthy you are going to have to hustle. If you choose average investments, this hustle will be your working income as you plow more money into your average performing mutual funds or whatever. If you instead tap into your mental energy you can supplement your returns by FINDING or CREATING wealth. It has to come from somewhere though. You can’t get away from the sacrifice or work.
If you chase you will get an average return though. Following the crowd is a form of chasing.
Swing the bat and risk losing
If you want to get rich you can’t afford to invest like a loser. You have to swing the bat. The beauty of this is that you only have to be right ONE time. You don’t have to be perfect, you don’t have to get it right ALL the time. You just have to make a few solid picks and bet big on those picks. That could change your life.
I am at a point in my career where I don’t even LOOK at what is popular in the paper. I don’t care what experts are talking about. They don’t know, they are just guessing. If you don’t believe me, go find old issues of the Forbes or Money Magazine and see what they were predicting. Find some ugly ideas that people hate and get them for pennies then flourish when people realize what is really going on. That is a bar.
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Be great guys, invest well,